Indian Economy Improving Fundamentals
India GDP • GDP growth to improve to 7.7% in FY2017 from 7.6% expected in FY2016; • Consumption demand to pick up due to: • Declining inflation, • Pick-up in employment and • One-time 7CPC impact (government to pump in INR 1.2 lakh crores) • Agriculture output may normalize assuming normal monsoons after two years of insufficient rainfall • Investment demand to pick up from 2HFY17 based on on-going reforms, lower interest rates, new orders in road and railway sectors • Government spending has picked up; higher capital expenditure over the next few years depending on improvement in fiscal position
Pay Commission… Lehmann crisis
NIFTY 50 – FYTD Performance 3rd March 2015 - 8995 29th Feb 2016 - 6987 (23% Correction)
What Impacted Indian Markets? • China Bubble - Devaluation of currency • FED Rate Hike – Impact on global liquidity • Oil Crash - GEM Funds face redemption pressure • India – Reforms not in pace with expectations • Earnings of ‘Indian Companies’ not improving • India – Not decoupled in near term
Recent correction .. Not new? GAINING NEWER PEAKS S&P BSE Sensex – Historical Peaks-Troughs-New Peaks
Long Term Earnings Growth = Long Term Share Price Growth
Earnings drive stock price EPS (Rs) Index Value CAGR (%) CAGR (%) 15.4 Nifty 9.2 15.4% CAGR over 10 years means that Rs 1 cr would have become Rs 4.17 crs!!! Note: Fiscal Year Ends; Source: MOAMC, Capital Line, Bloomberg
Markets eventually return as much as growth in earnings… …but we must note markets are more volatile than earnings…!!!
Earnings drive stock price PAT Growth: 27%; Stock Price: 34%; Nifty 50: 13% PAT Growth: 12%; Stock Price: 24%; Nifty 50: 14% Note: Quarterly data. Source: MOAMC, Capital Line
Motilal Oswal PMS An Update - Why now ??
Our investment philosophy – ‘Buy Right : Sit Tight’ At Motilal Oswal Asset Management Company (MOAMC), our investment philosophy is centered on 'Buy Right: Sit Tight‘ principle. Sit Tight Buy Right QGLP • Buy and Hold: We are strictly buy and hold investors and believe that picking the right business needs skill and holding onto these businesses to enable our investors to benefit from the entire growth cycle needs even more skill. • Focus: Our portfolios are high conviction portfolios with 20 to 25 stocks being our ideal number. We believe inadequate diversification but over-diversification results in diluting returns for our investors and adding market risk • ‘Q’ualitydenotes quality of the business and management • ‘G’rowthdenotes growth in earnings and sustained RoE • ‘L’ongevitydenotes longevity of the competitive advantage or economic moat of the business • ‘P’ricedenotes our approach of buying a good business for a fair price rather than buying a fair business for a good price
Value PMS – Q2 earnings growth Average earnings growth of Value Strategy has been 24% during Q2FY16 versus negative growth of Nifty 50 Index
Value PMS – Q3 earnings growth Weighted average portfolio earnings growth is 71% (59% ex BPCL) As on 12th February 2016
Value PMS - Performance since inception The chart below illustrates Rs.1 crore invested in Value PMS in March 2003 is worth Rs. 18.56 crores as on 31st January 2016. For the same period Rs. 1 crore invested in Nifty 50 is now worth Rs. 7.48 crores. 18.56X Investment Value 7.48X Strategy Inception Date: 24/03/2003. Please Note: The Above strategy returns are of a Model Client as on 31st January 2016. Returns of individual clients may differ depending on time of entry in the strategy. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Strategy returns shown above are post fees & expenses.
NTDOP PMS – Q2 earnings growth The average earnings growth of NTDOP Strategy has been 28% during Q2FY16 versus negative earnings growth of Nifty Midcap 100 Index
NTDOP PMS – Q3 earnings growth Weighted average portfolio earnings growth is 39% (ex HPCL) As on 12th February 2016
NTDOP PMS - Performance since inception The chart below illustrates Rs. 1 crore invested in NTDOP Strategy in December 2007 is worth Rs. 3.50 cr as on 31st January 2016. For the same period Rs. 1 crore invested in Nifty Midcap 100 Index is now worth Rs. 1.47 cr. 3.50X Investment Value 1.47X Strategy Inception Date: 11/12/2007. Please Note: The Above strategy returns are of a Model Client as on 31st January 2016. Returns of individual clients may differ depending on time of entry in the Strategy. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Returns below 1 year are absolute and above 1 year are annualized. Strategy returns shown above are post fees &expenses.
Conclusion • You can swim against the tide (i.e. make money in flat markets) … provided you have the requisite skills. • Eventually portfolios return as much as earnings growth but remember that share prices are more volatile than earnings. • The requisite skills come from a good investment philosophy, and pig-headed determination of practising it. • A good investment philosophy evolves after years of research, practice, and fine-tuning. • We believe our investment philosophy – QGLP and its continuous improvement – should help us deliver sustained superior performance.