Equity For Long Term Investing: Twitter @balajispice

Equity for Long Term Investing
May 2019
Twitter @balajispice
Clue for the General Market
Sentiments / Prospect
• NIFTY PE is very High
• US China Trade War
• Global Slowdown
Misplaced Focus
• OIL price
• Yield Curve Inversion
• GDP Growth 5 Years Low
• Tax Cut to Corporates
Proxy for the General Market
NIFTY 50 Stocks Weightage- Across Time Period
Stock Name 2004 Stock Name 2009
ONGC 15.3 Reliance Industries Ltd. 12.9
Reliance Industries Ltd. 9.4 ONGC 8.4
Wipro Ltd. 4.6 NTPC Ltd. 7.1
Infosys Ltd. 4.4 Bharti Airtel Ltd. 6.5
State Bank of India 4.3 Infosys Ltd. 3.9
Bharti Airtel Ltd. 4.0 State Bank of India 3.7
HUL 4.0 BHEL 3.7
ITC Ltd. 3.4 ITC Ltd. 3.2
Ranbaxy Laboratories Ltd. 2.5 TCS 2.8
ICICI Bank Ltd. 2.5 ICICI Bank Ltd. 2.4
Top 10 Total 54.4 Top 10 Total 54.5
Stock Name 2014 Stock Name 2019

ITC Ltd. 8.2 HDFC Bank Ltd. 10.6
Infosys Ltd. 6.7 Reliance Industries Ltd. 10.1
Reliance Industries Ltd. 6.7 Housing Development Finance Corporation 7.0
ICICI Bank Ltd. 6.3 Infosys Ltd. 6.1
Housing Development Finance Corporation Ltd. 6.1 ICICI Bank Ltd. 5.6
HDFC Bank Ltd. 5.8 ITC Ltd. 5.5
TCS 4.9 TCS 5.0
Larsen & Toubro Ltd. 4.6 Kotak Mahindra Bank Ltd. 3.9
Tata Motors Ltd. 3.2 Larsen & Toubro Ltd. 3.5
State Bank of India 2.8 Axis Bank Ltd. 3.2
Top 10 Total 55.3 Top 10 Total 60.4
IF NIFTY itself is a evolving Index, valuation based on historical data
has to be seen with these changes in perspective.
Both cars are same by name but different in looks and character .
Same analogy holds good for NIFTY Index also.
Nifty – Tale of Two Stories
Return
Since Jan-18
36%
3%
-19%
Source : Bloomberg
Steep Market correction Since Jan 2018
-41%
Source : Bloomberg
What matters in the Medium to
Long Run ???
Corporate Profitability & Valuations
Company A vs NIFTY Price Movement in last 10 years
What Popular metric do we choose for selecting
Banking Stocks
Stock Name Book Value Price to Book
Stock Name A 91.8 4.07
Stock Name B 197 0.97
Question : Which stock do we prefer ?
Rs 100 Invested in Both Bank
Stock A
Stock B
What was considered cheap

Sectors which has created huge wealth across time
periods
Why Stock A outperformed Stock B even though
Stock B was cheap by PB Ratio
Book Value Book Value Book Value

Stock Name
2014 2019 CAGR
Stock Name A 91.8 281 25%
Stock Name B 197 235 3.5%
Business progress leads to price performance in long term
Its Earnings Matter in the long run ?
200 Hundred years history of Asset Performance
Nifty PAT – PSU vs Private
(INR cr)
Nifty FY13 FY14 FY15 FY16 FY17 FY18 FY19 6Y CAGR
Private 1,47,403 1,96,745 1,84,102 1,95,680 2,40,949 2,89,041 2,65,340 10.3%
PSU 86,949 89,032 78,470 81,471 90,822 85,061 96,368 1.7%
Total 2,34,352 2,85,777 2,62,572 2,77,151 3,31,771 3,74,102 3,61,708 7.5%
Source : Ace Equity
Nifty quarterly Net sales (Ex financials) – YOY
growth trends
Nifty quarterly profit – YOY growth trends
Strong Companies continue to well despite
Slowdowns
Historical Profit PROFIT CAGR
MCAP 10 Year
Sr.N Company -Value MCAP
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1 Year 3 Year 5 Year 10 Yr Multiplied CAGR
o. Name
1 TCS 5311 7093 9190 10523 14076 19332 20060 24338 26357 25880 31562 22% 9% 10% 20% 14 30%
2 HDFC Bank Ltd. 2252 3033 4018 5273 6900 8765 10700 12817 15287 18561 22446 21% 21% 21% 26% 15 31%
3 Infosys Ltd. 5988 6218 6835 8332 9429 10656 12373 13492 14383 16100 15410 -4% 5% 8% 10% 4 16%
4 ITC Ltd. 3359 4211 5069 6322 7418 8991 9766 9492 10471 11485 12824 12% 11% 7% 14% 5 18%
5 Kotak Bank 653 1327 1569 1851 2204 2512 3065 3431 4949 6147 7120 16% 28% 23% 27% 26 39%
Bajaj Finance
6 34 89 247 406 591 719 898 1279 1836 2674 3995 49% 46% 41% 61% 695 92%
Ltd.
Asian Paints
7 419 884 881 1021 1160 1263 1427 1769 1967 2052 2171 6% 7% 11% 18% 19 34%
Ltd.
3 Banks holds the key for revival in earnings …
Year Provision PAT PAT vs Provision Ratio
2010 12065 19335 1.60
2011 17160 20843 1.21
2012 18794 27986 1.49
2013 18892 33687 1.78
2014 25782 32476 1.26
2015 31900 37908 1.19
2016 50354 32028 0.64
2017 90001 14917 0.17
2018 109507 5376 0.05
2019 87298 13805 0.16
Companies reporting all time high profits
Source : Ace Equity Twitter @balajispice

Funds Return – Completed more than 10 Years
( All Category )
Category Return
How many of our
client portfolio
captured these
Average 11.7
returns ??
My Guess : Very Few

Median 11.5
Market ups and downs are nature of the market
Instead of questioning why – we need to prepare and make use of fall

Current market cap/GDP ratio is close to historic
average
Source : Bloomberg Twitter @balajispice

Does Higher GDP Leads to Higher Market
Return ???
In Short Term , Market conveniently Ignore the Long
term Picture
In Long Term, Market completely forget the short time

noise created by news flow
Keep Focus on right Thing --- Happy Long Term Investing !!!
Thank You

Equity For Long Term Investing: Twitter @balajispice

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Equity for Long Term Investing

• US China Trade War

• Yield Curve Inversion

• GDP Growth 5 Years Low

• Tax Cut to Corporates

Stock Name 2014 Stock Name 2019

Corporate Profitability & Valuations

Stock Name Book Value Price to Book

Stock Name A 91.8 4.07

Stock Name B 197 0.97

Question : Which stock do we prefer ?

What was considered cheap

Book Value Book Value Book Value

Stock Name A 91.8 281 25%

Stock Name B 197 235 3.5%

Business progress leads to price performance in long term

Source : Ace Equity

Source : Ace Equity Twitter @balajispice

My Guess : Very Few

Instead of questioning why – we need to prepare and make use of fall

Source : Bloomberg Twitter @balajispice

In Long Term, Market completely forget the short time

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