Equity Market Review Jan-11

8/4/2019 Equity Market Review Jan-11

1/23

Equity Markets Review

January 2011


2/23

Sensex Rolling ReturnsNO. YEAREND SENSEX ROLLING1

YR

GROWTH

ROLLING

5YR

GROWTH

ROLLING

10YR

GROWTH

ROLLING

15YR

GROWTH

0 Mar-79 100

1 Mar-80 129 29%

2 Mar-81 173 35%

3 Mar-82 218 26%

4 Mar-83 212 -3%

5 Mar-84 245 16% 20%

6 Mar-85 354 44% 22%

7 Mar-86 574 62% 27%

8 Mar-87 510 -11% 19%

9 Mar-88 398 -22% 13%

10 Mar-89 714 79% 24% 22%

11 Mar-90 781 9% 17% 20%

12 Mar-91 1168 50% 15% 21%

13 Mar-92 4285 267% 53% 35%

14 Mar-93 2281 -47% 42% 27%

15 Mar-94 3779 66% 40% 31% 27%

16 Mar-95 3261 -14% 33% 25% 24%

17 Mar-96 3367 3% 24% 19% 22%

18 Mar-97 3361 0% -5% 21% 20%

19 Mar-98 3893 16% 11% 26% 21%

20 Mar-99 3740 -4% 0% 18% 20%

21 Mar-00 5001 34% 9% 20% 19%

22 Mar-01 3604 -28% 1% 12% 13%

23 Mar-02 3469 -4% 1% -2% 14%

24 Mar-03 3049 -12% -5% 3% 15%

25 Mar-04 5591 83% 8% 4% 15%

26 Mar-05 6493 16% 5% 7% 15%27 Mar-06 11280 74% 26% 13% 16%

28 Mar-07 13072 16% 30% 15% 8%

29 Mar-08 15644 20% 39% 15% 14%

30 Mar-09 9709 -38% 12% 10% 6%

31 Mar-10 17528 81% 22% 13% 12%

32 Mar-11* 19150 9% 11% 18% 12%

11/33 3/28 1/23 0/18Probabilityof loss

Past Performance of the SENSEX may or may not be sustained in the future. * Assume Index at same level for Mar-11 for illustrativepurpose* Returns for the 1 year period are shown on absolute basis

** Returns for periods more than 1 year period are shown on a compounded annualised basis Note: The base year of SENSEX is 1978-79 and the base value is 100.Please visit www.bseindia.com for the SENSEX calculation methodology


3/23

Indian Economy: In a Secular

growth phaseDecadal GDP growth continues to accelerate and is likely to move to 10% p.a.over next fewyears.

Source: Anand Rathi, decadal growth is for decade endingSource: Anand Rathi, decadal growth is for decade ending

3.83.5

4.14.4

5.7

7.2

2

3

4

5

6

7

8

1951-60 1961-70 1971-80 1981-90 1991-2000 2001-10

(Growth,YoY,%

)

GDP growth


4/23

Indian Economy: Positive LongTerm outlook

Consumption growth continues to be strong

Strong traction in infrastructure spending - Roads/Power to see largeinvestments

Roads: $ 30bn worth projects to be awarded over next 2 years.(~ $ 9bn of road projects were awarded over last 2 years & $ 27bnover last 5 years)

Power: 40,000 MW of capacity to be commissioned by FY2012 on abase of 160,000 MW, which entails an investment of ~ $35bn

Capacity utilization in manufacturing is running at near peak levels.This will necessitate increase in Industrial capex.

With steady consumption growth & accelerating infrastructure spend/increase in industrial capex, Indias GDP growth is expected to movetowards 10% p.a over next few yearsSource: Estimates and GOI data


5/23

Indian Economy: Low penetration ofconsumer goods

Decent room for growth in mobiles itself most common durable; otherdurables like cars etc have larger room for growth

Mobile Telephone Subscriptions Per 1000 Perso

386

532

674

876 894929 947 963

12551336

0

200

400

600

800

1000

1200

1400

1600

India

China

World

Brazil

Japan

USA

SouthAfrica

France

UK

Germany

Passenger Cars in Use Per 1000 P

25 37

96 105 105

318

430

495 496 502

0

100

200

300

400

500

600

India

China

SouthAfrica

Brazil

World

Japan

USA

UK

France

Germany

Source: BAML & Euro monitor -Data pertains to CY 09


6/23

Indian Economy: AcceleratingSaving rates

Rising savings rate to support faster GDP growth - % share of working

population will increase for next 3 decades.


7/23

Indian Economy: Near termchallenges


8/23

Equity Markets: A Review

Sensex near 20,000 after almost 3 years.

However, this time 20,000 index is fundamentally different. P/Es have moderated from 23x to 15x .

There are no material excesses in the markets unlike in 2007. Markets are valuing quality at a premium both in primary & secondary

markets, unlike in 2007

Rising Oil & commodities prices, persistent high inflation, increasing

interest rates & high inflation are pressure point for the economy.

Large supply of paper in Jan- Mar 2011 (~30,000crs)

Sail 8000crs

ONGC 10000crs

JSPL 7200crs

Tisco 3700crs


9/23

Equity Markets: Valuations nearLT averagesBSE- 30 Index & 1- year Rolling forward P/E

Source: CLSA

By Jan-12, Sensex P/E at 19,000 level will nearly be 14x

7.00

12.00

17.00

22.00

27.00

32.00

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

2,000

4,0006,0008,00010,00012,00014,00016,000

18,00020,00022,000Sensex (RHS) Fwd P /


10/23

Equity Markets: Outlook

Earnings growth outlook is decent despite stress on macroeconomic indicators

Sensex at 19100 trades at 16x P/E on Mar-12 estimates. These isslightly lower than long-term averages.

Returns over medium term should be in line with earnings growthrate i.e., 15-20% CAGR; returns of Large caps/ mid caps should notdisplay large divergence.

Spike in Oil prices is a key risk; reduction in fiscal deficit needs tobe monitored closely

Risk reward is favourable over medium to long term; allocation toequities should be increased in phases over 3-6 months


11/23

Investment Strategy: Assetallocation is key

Key to investing is right asset allocation i.e. how much in equities ratherthan when (timing) and where (stock selection)

Safe capital should be invested in Short Term Bond Funds / GILT Funds

Gap between bond and equity returns over medium to long term is likelyto be reasonable

Investors should consider increasing exposure to equitiesEven a 6% p.a. higher return* when compounded over long term, makes

a

significant difference to returns* and wealth creation.


12/23

Equity Mutual Funds are one of the best

ways to invest in Stock Markets.

ADVANTAGES OF EQUITY MUTUALFUNDS

1.Well Researched Portfolios

2.Professional Management

3.Advantages of IPOs/ Placement and big deals

4.You can invest in Small amount

5.Low cost


13/23

Real(i)ty Indian Real Estate, back ontrack


14/23

Real Estate Emerging steadily from the slump

The REAL ESTATE journey

Glory Despair Recovery

2006 - 07 2007 - 08 2008 - 09 2009 - 10

High liquidity atlow rates

Highest levels

of land buyingrecorded

Rise inmortgage rates

Rise in prices

due to oversupply

Depresseddemand, lowsales

Lack of trustabout pricingand delivery ofprojects

Enough signs of easing

liquidity Increase in off take with

stability appearing in prices

After a course correction, Back on track


15/23

Real Estate growth expected at a CAGR of 26% till 2014

44

55.4

69.9

88

110.9

139.7

0

30

60

90

120

150

2009 2010 2011 2012 2013

Estimated Real estate market size 2009 - 2014

15

15

17

10

10

17

18

25

26

23

26

25

23

22

2420

25

20

20

19

0% 20% 40% 60% 80% 100%

Office

Retail

Residenital

Hospitality

1

2

3

4

5

6,90,000 room nights

7.5 million units

43 million sq. feet

196 million sq. feet

Sector wise demand projections 2009 -2013

Currently property prices present a great opportunity to investors. A peak is expected

in the next 3 -5 years making real estate an attractive investment opinion.

The residential segment will lead the sectors recovery:

New players are expected to enter the market with properties designed keeping in

mind current economic condition and consumer preferences

Focus of real estate developers is the affordable housing segment which makes

up 50% of the total market currently.

US

Db

illion

CAGR

:26%


16/23

The best time to invest in this asset class

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Jan-

09

Feb-

09

Mar-

09

Apr-

09

M

ay-

09

Jun-

09

Jul-

09

A

ug-

09

S

ep-

09

Oct-

09

N

ov-

09

Indian Real Estate Index - 2009 Evident signs of increasing investment

activity in the real estate sector USD 15 billion, the sum raised by real estate

firms in the past six months through QIPs

FDI Inflow

(USD million)

2006 -07 2007 - 08 2008 - 09 2009 10(E) Cumulative

(2006 2009)

Housing and realestate

467 2179 2801 1181 6628

India tops the BRIC nations Real Estate Transparency Index says Jones Lang LaSalle as per their2008 report. Investors looking at India as a long term investment destination can be confident


17/23

Residential realty The juicy bit


18/23

Residential realty demand peggedat 7.5 million homes by 2013

Demand for residential realty toreach 7.5 million units by 2013*.

Highest Cumulative demand willbe seen by Mumbai (1.6 million

units). Bangalore and Hyderabad

to witness highest CAGR at 14%. Urbanization, development of city

suburbs, increasing nuclear

families and rising income levels

to be the key demand drivers.

Prize rationalization, reduced

costs of borrowing, governmentsops etc. and, increasing focus on

affordable housing all

contribution to renewed demand.

Most developers are increasing

their portfolio to include

affordable housing.

120000

135000

150000

165000

180000

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

2009 (E) 2010 (E) 2011 (E) 2012 (E) 2013 (E)

Residential Real Estate Demand in units(2009 13)

Un

its


19/23

3 Factors that SAVVY

Real Estate Investorconsider before they

by any property


20/23

1. LOCATION

2. LOCATION

3. LOCATION


21/23

Apart from location factors that you shouldconsider before buying Real Estate

1. Future Infrastructure Development

2. Employment potential of the city

3. Reputation of the developer4. Site Plan / Apartment Plan

5. Your cash position and budget

6. Advantage of leverage


22/23

RISKS

1. Property prices India as compared to percapita GDP are highest in the world.

2. Interest rates are high and it affects thebuying power of the buyers.

3. The financial position of most of thedevelopers is not very good.

4. Rapid Infrastructure Development


23/23

Thank you

Equity Market Review Jan-11

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