Investment Outlook: Its all in Your Mind

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Investment OutlookIts all in Your Mind
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Summary

• Investing is easy!
• Avoid the distractions
• Disaggregate the market
• Focus on business drivers
• Follow the Rules
• Asset Allocation
• Time Horizon
• Reasonable Expectations
• Learn get wise

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Investing is easy if you avoid the distractions!
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Market shows low correlation to current fears
Sensex vs Govt
Sensex vs Fiscal deficit
Congress
UF
NDA
Source RBI
Sensex vs Oil price
Sensex vs Monsoon
Drought
Source Statistical outline of India
of district having excess/normal rainfall
Source BP statistics
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Index P/E (Forward Earnings)
Source Bloomberg
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BSE Index Scenarios

• Current Sensex Earnings aggregate to Rs. 381
  (FY04A)
• IBES consensus earnings estimates 17 growth
• Current Sensex is at 4,951
• Implied PER is 13x (trailing) and 10.5x
  (forward).
• The table below sets out the range of Index
  expectations over next year

Risk-Reward in favour of Upside!
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but the Index hides more than it shows!
IT
Pharmaceuticals
Banking
Media Auto
All Figures indexed 100 price in 1994
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Multibaggers of the last 10 years
Source Bloomberg Adjusted for bonuses and stock
splits NIFTY constituents only
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Multibaggers since 9/11 The REAL BSE-30!
Source Bloomberg Adjusted for bonuses and stock
splits NIFTY constituents only
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Investing is easy if you disaggregate the market
Note Companies may change characteristics over
time!
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Focus on Micro, Company specific factors

• How is Product or Service Quality?
• Germany/Japan/China v/s India, v/s competition
• How is Cost Capital Efficiency?
• Frugality as a mindset v/s professionally
  managed
• What are their Value Systems?
• Sugar in the milk
• How is their Service to the Customer?
• The goodwill earned

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Markets continuously discount all factors
Use Bond Yield Reciprocal (100/8)12.5x as your
benchmark
PE multiple represents Predictability,
Sustainability, Scaleability
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Investing is easy if you follow the RULES

• KNOW YOURSELF
• Are you Schumacher or Buffet? If not Why not
  Hire them!
• Have a 3 5 year outlook Time is the friend of
  a good business
• Proper asset allocation prevents panic attacks!
• Have reasonable return expectation 15 CAGR
  compounds to lot of money!
• In equities 6/10 is a good success rate
• PAY FOR QUALITY
• Good men make good companies Relative goodness
  is good enough!
• Good companies, like good men are FEW!
• Competitiveness culture (Micro factors) matter
  more than Macro trends
• IS IT IN THE PRICE?
• Dont double count factors!

Remember to BOOK PROFITS !!
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Thank You