Navin Agrawal, MD & CEO, Motilal Oswal MF believes that with a long term perspective on the markets, the odds during the next five years are extremely favourable. FIIs have been investors in India and have been putting in big money as well. Believing that India has its decade ahead, Navin addressed the MFDs on ‘India - A lifetime opportunity’ at the Cafemutual Ideas Fest 2021. He shared four factors to look at India in the long term:
Government announcements
Referring to government announcements in February 21, Navin believes that privatisation will bring out the best operational abilities of companies. Further, talks about assets monetisation, Capex budget and foreign borrowing for REITs (Real Estate Investment Trusts) /InvITSs (Infrastructure Investment Trust) would pave the way for more funds in infrastructure projects. Navin also believes that the architecture of stressed banks will help consolidating the lending by PSU banks and the banks can deal with the stressed assets in a far quicker way. Besides, it will also free the bandwidth of the banks to focus on lending.
Corporate profits
Usually the markets are an outcome and by-product of corporate profit. Corporate profits to GDP of India over the last decade is an average of 5%. The last year ended at 1.8% while the US was at 12%. Navin believes that as sectors recover, these numbers will improve. Also, ‘Miss and Cut’ is making way for ‘Beat and Upgrade’. The last decade witnessed a miss and cut i.e. miss in the earnings estimates by the corporates and a cut in the estimates by the analysts. Here is a graphical representation:
Nifty EPS Estimates v/s Actual EPS
Source: Bloomberg
* Dates as of February 2021
FY 2003-08 was a period of beat and upgrades with an EPS growth of 25% CAGR. This was followed by a period of miss and cuts.
A similar period of earnings beat and upgrades is expected to return as witnessed during FY 2003-08.
However, recently with the corporates beating the estimates, the analyst upgraded their estimates.
Nifty FY21E/FY 22E EPS revised by 7%/5% between Apr'20 and Feb'21
Source: Motilal Oswal Financial Services Ltd Companies
The Nifty FY21 E EPS estimate was upgraded by 7.4% between Apr’20 and Feb’21. It was upgraded by 18% since Oct’20 to INR 536 as faster than expected economic recovery helped companies post blockbuster earnings.
The same for FY 22E was upgraded by 5.3% between Apr’20 and Feb’20. Post Oct’ 20 it was upgraded by 12% to INR 713.
The move from 2.5 trillion dollars to the 5 trillion dollars benchmark
There are only three countries in the world that have crossed the 5 trillion dollar mark - the US, China and Japan. During the journey from 2.5 trillion dollars to 5 trillion dollar GDP, the markets in the US and China delivered spectacular returns. In Navin’s view, based PLI (production-linked incentive) and other schemes announced by the government, India is likely to see robust earnings growth and stock market performance, as India replicates models of these countries.
Catching up with the US counterpart
Performance divergence between US and Indian equity markets has deviated significantly since 2008. The US markets were up above by three times in Dec 20 compared to what they were in 2008. Whereas, Indian markets remained flattish during this period. If India was to catch up where the US is today over the next five years, the Indian markets need to rise 20.5% pa in USD terms.
Wealth creation is all about behaviour and not about predictions. Navin shared that more than 50% of the best 30 days in the last thirty years were during bear markets. Additionally, a linear increase in the number of years invested can lead to an exponential increase in wealth generation. Investors trying to time the market may land up multiplying the money a lot lower. Navin impeccably explained the four factors to view the long term, which can be viewed by clicking here.
