BSE Sensex crossed the 30,000 level decisively today and is trading at all time highs. The question is where to from here for the Sensex?
BSE Sensex has touched record high levels of 30248 on 10th May 2017 due to global cues and after IMD (India Meteorological Department) reportedly commenting that India may likely receive higher monsoon rainfall than previously forecast. Sensex has given returns of 13.73% (YTD) and 1.54% (M-o-M).
Sensex can Reach 40k in 2019
The next two years is likely to see Indian equity markets cross many peaks as both the global economy and Indian economy are seeing signs of coming out of a long slump post 2008 financial crisis. India’s political climate too looks strong with the Modi led BJP government sweeping state polls in key states such as UP. We expect the Sensex to touch 40,000 in 2019.
Obviously there are risks to the Sensex reaching 40k in 2019, from both global and domestic sources. In our comprehensive presentation on “Sensex at 40k in 2019” we have highlighted the global and domestic factors that give rise to optimism and also the risks that can affect the achievement of the target of 40k.
The Presentation is available exclusively for paid subscribers, the subscription plans are given below.
Now to Catch Rise and Falls in Sensex & Nifty
Over the last 17 years, Sensex and Nifty have fallen sharply in five periods, 2008, 2000-01, 2004, 2006 and 2011. Sharpest and most worrying falls were in 2008 and 2001-02. Here is such types of falls where you should look to cash in or stay away from Sensex & Nifty. Past is no indication of future but we will give you the forward analysis required to gauge the health of Indian economy and corporate sector.
The Sensex and the Nifty have returned 443% and 467% since January 2000 till date. The movement of the index has not been smooth and steady for all these years as some years have seen a sharp rise while some have witnessed drastic falls. There have been scenarios where the benchmark indices – Sensex and Nifty have corrected sharply on a daily basis as well as on a monthly basis. The graphs below show the movement of the Sensex and the Nifty since January 2000 and the tables below gives the data about drastic falls of more than 10% for the benchmark indices on a monthly basis.
According to the data given in the table the Sensex and Nifty have corrected sharply (a fall greater than 10%) on a monthly basis by ten times since January 2000.
The sharpest fall was witnessed in the month of October 2008 where the Sensex and the Nifty corrected 24% and 26% respectively due to the Subprime crisis in the US. The month of June 2008 also witnessed a correction in the benchmark indices to the tune of 17% on a monthly basis.
Another instance of a major correction was during the period 2000-2001 where the Sensex and the Nifty corrected 15% each in the month of March 2001 as the dot come bubble burst during that time.
The month of May 2004 saw a correction of more than 15% for the Sensex and the Nifty. The reason for the fall was the change in government at the centre, with the Congress coming back to power with outside support from the Left. The opposition of the Left to reforms led to panic selling on fears that foreign institutional investors would pull out of India.
The other major corrections which witnessed a fall of greater than 10% but lower than 15% for the benchmark indices were in the year 2006 and 2011. The concern during May 2006 was a resurgence of inflation and a series of monetary tightening measures by central banks across the world, including a surprise increase in the policy rate by the RBI.
“India 2019 Equity Portfolio”
The Sensex can potentially return 35% over the next two years until 2019 and we have constructed an Equity Portfolio of 10 stocks that can potentially deliver 2x Sensex returns. India 2019 Equity Portfolio is for Subscribers wanting to participate in the India story based on economic reforms and political stability if the Modi government is reelected to run the Central Government in elections 2019.
The next two years is likely to see Indian equity markets cross many peaks as both the global economy and Indian economy are seeing signs of coming out of a long slump post 2008 financial crisis. India’s political climate looks strong with the Modi led BJP government sweeping state polls in key states such as UP. Indian equity markets will start playing for 2019 re-election of the Modi Government at the Centre. Click here for our presentation on Sensex at 40k in 2019.
The main driver of the benchmark indices the Sensex and the Nifty is the weighted average earnings growth for the companies in the respective indices. The Sensex is expected to reach levels of 40,000 offering an upside of 39% till the year 2019. The new portfolio is designed to capture the potential growth from the sectors that are expected to grow faster as compared to the benchmark indices of Sensex and Nifty.
Sectors such as Consumer Durables, Automobiles, Microfinance, Financial Services, Aviation, Infrastructure, Telecom Infrastructure and Retail are expected to witness higher growth than other industries or sectors in terms of revenue and profit.The business opportunity for each sector gives the rationale behind selecting these sectors over others for investment purpose in the new portfolio. The growth in terms of revenue and profitability for the selected sectors is explained below.
Retail industry in India is expected to grow to USD 1.3 trillion by 2020, registering a Compound Annual Growth Rate (CAGR) of 16.7% over 2015-20. The country is among the highest in the world in terms of per capita retail store availability. India’s retail sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. Healthy economic growth, changing demographic profile, increasing disposable incomes, urbanization, changing consumer tastes and preferences are the other factors driving growth in the organized retail market in India.
Automobiles and Consumer Durables
The 7th Pay Commission, higher rural income on government’s budget 2017-18 thrust on the rural economy are expected to prop up demand for Automobiles and Consumer Durables. The tax cut of 5% for individuals having income in the range of Rs 2.5 lakh to Rs 5 lakh would directly increase the buying power of middle class consumers. This move is expected to give additional thrust to buy automobiles in the rural as well as the urban areas.
The allocation for Roads and highways has increased to Rs.649 billion for FY 2017-18 from the earlier FY 2016-17 allocation of Rs.524.47 billion.The increase in allocation for the infrastructure sector would mean that companies in the public private partnership space would receive more orders from the Government. Companies that build roads and highways would be big beneficiaries as increase in their order book would eventually translate into higher revenues and profitability for them.
Mobile internet penetration is at 35% and smart phone user’s penetration is at 29% in India and it is estimated to reach 60% by the end of 2019. With increase in number of smart phones, data consumption will lead to higher demand for optic fibres across India. Indian telecom industry has seen incredible growth in terms of expansion of 3G network capacity and rollout of 4G/LTE. Tower capacity in India is around 350000 – 400000 units out of which 10% of them are fiberized. It is expected fiberization will increase to a level of 60% – 70% of total towers as telecom players are likely to set up infrastructure and develop technology in line with Rjio’s digital set up. Next technological upgrade in telecom industry would be 5G internet services, to enable this services 100% fiberization is required and they are likely to get started by 2020 in India.
India’s civil aviation industry is on a high-growth trajectory and aims to become the third-largest aviation market by 2020 and the largest by 2030. India is the ninth-largest civil aviation market in the world, with a market size of around USD 16 billion. India is expected to become the third largest aviation market by 2020. In FY16, the Indian domestic aviation market grew at 21.6%. The growth is attributed to the large and growing middle-class population, rapid economic growth, increased spending and low aircraft penetration levels in the country. India has only 150 million passenger trips a year as compared to China’s 450 million and the US’ 800 million. According to the latest data from the Directorate General of Civil Aviation (DGCA), passenger traffic during January-November 2016 zoomed by 23.10% to 90.36 million.
Microfinance and Financial Services
The microfinance sector, which is seen as a vehicle of financial inclusion, has seen a boom over the past year as government has laid more emphasis on financial inclusion. The sector is expected to grow robustly in the next few years as large players would consolidate their position in the market.
India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The country is projected to become the fifth largest banking sector globally by 2020. The report also expects bank credit to grow at a Compound Annual Growth Rate (CAGR) of 17 per cent in the medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the country also projects a CAGR of 12–15 per cent over the next few years for the financial services segment.
The India 2019 equity portfolio consists of ten fundamentally strong companies with some of them being market leaders in the above mentioned high growth sectors. The India 2019 equity portfolio consists of ten stocks which are expected to have earnings growth significantly higher than those in the Sensex and the Nifty. These companies in the new portfolio have good fundamentals in terms of growth in revenues and profitability along with higher than industry average ROE and RoCE. The cashflows for most of the companies are in the positive territory while those with a negative cashflow have lot of investment going in them to generate value for the stakeholders in the long run.
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India 2019 Equity Portfolio
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Invest, Earn & Leran MF Portfolio
We bring you low cost investment strategy for your mutual fund investments based on Warrant Buffett’s principles.
Warren Buffett is the Richest Investor in the World and to get there and stay there he has obviously done something right, consistently over a long period of time.
We apply his Principles to your MF Portfolio and you can reap the benefits of his wisdom.
Two primary principles of Warren Buffett that we follow for advising you on your MF Investments are
1. Active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still. The massive fees levied by a variety of “helpers” would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund.
2. Sell when others are buying and buy when others are selling.
Based on these two Principles of Buffett, we will construct a simple mutual fund portfolio that carries low cost, which can be as low as just 0.05%. We will also distribute your investments between Equity Funds, primarily Index Funds or ETF’s that mirror the performance of Sensex or Nifty Index, and Fixed Income Funds. Depending on your understanding and risk appetite we will also selectively suggest active funds that do not carry high costs..
Not only we will give you the MF portfolio, we will give you the tutorials required to understand your investments.
Your MF investments will then gain when Sensex and Nifty are rising and will be protected when they fall sharply and stay low for long periods of time. When Sensex and Nifty are rising and looking to rise for longer periods of time, we will construct your portfolio in such a way that you gain maximum benefit from the rise. However when markets are at peaks and looking to fall, your portfolio will be exposed only to Fixed Income, that protects capital and provides stable returns .
Moreover, we will keep updating you on our analysis of Markets, Economies and Businesses, which will give you a good knowledge of outlook for equity and fixed income markets, which in turn will determine your MF portfolio.
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If you are reading this, you will be knowing India’s barometer of Economic and Corporate Health, The BSE Sensex and NSE Nifty. You would also know that if Sensex and Nifty are rising, India’s economic and corporate health are looking up and if the Sensex and Nifty are down, India’s economic and corporate health are going down.
Sensex comprises of 30 of India’s largest companies and Nifty comprises of 50 of India’s largest companies. Read our tutorial of Sensex and Nifty to know more about the Indices. You can create enough wealth to secure your financial future post retirement by just investing in Sensex and Nifty when they are rising and by not investing or taking profits when they are falling. After all when India’s economic and corporate health are looking up its time to invest and when they are looking down its time not to invest.
You can invest in the Sensex & Nifty through ETF’s, which are low cost securities that trade on the stock exchanges or through Index Funds floated by Mutual Funds. Read our tutorials on ETF’s and Index Funds.
Once you invest in ETF’s or Index Funds, say you have invested Rs 100/-, all you need to check is if Sensex or Nifty is rising or falling. For example if Sensex and Nifty rise by 2%, your Rs 100 investment will be Rs 102 (marginally lower due to fund expenses) and if it falls by 2%, your Rs 100 investment will be Rs 98. Simple.
Do you know that part of your Provident Fund investments (5%) are in Sensex and Nifty as EPFO invests in the indices and if you have subscribed to NPS, a good part of your investments are in Sensex and Nifty, depending on the plan you have chosen.