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Earnings dont disappoint

I remember the commentary pre Q1, that results would OBVIOUSLY be bad. Q1 is a whitewash & since Q2FY22 was the reopening quarter, Q2FY23 too shall be disappointing when compared to last year.

Guess what? Q1 was not a white wash. Earnings were robust if anything. But the outperformance was concentrated in the top names. Growth continued to outperform value as value stocks have failed to grow. The economy is not on fire. Market share consolidation is taking place and the decade old phenomenon of expensive getting more expensive will continue.

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  • image description By Parth
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India had 89.7 million demat accounts at the end of this fiscal. This number has jumped to 96.5 million demat accounts at the end of June 2022. It is expected we will reach 400 million demat accounts within a few years. Imagine the inflows coming domestically!

India comes 5th in current market cap to GDP ratio. Below USA, China, Japan & Hong Kong. Our current market cap to GDP ratio is ~100%. Our current GDP is $3tn. We are on our way to reach $6tn GDP.

China reached from a $3tn economy to $6tn economy in 7 years (from 2001 to 2008). USA reached from a $3tn economy to a $6tn economy in 15 years (from 1961 to 1976). I am an eternal optimist and am quite sure we will reach a $6tn economy by 2032 (in the next 10 years). Also our financial savings are currently at $1tn. This will reach $3tn by 2030. Allocation to capital markets as a % of household savings is on the up and is bound to increase even further.

I am sure you are not listening to these stats for the first time. I am sure you would have heard that once we reach $5tn GDP, the magic starts to happen.

Guess what? The magic has already started to happen. Everyone who is reading this, think of the stuff you consumed 5 years back and what you consume now. Food, transportation, clothing, housing, education, recreation and on and on. And guess what, you don’t even drive the economy. The drivers of our economy is our big mean; our GDP per capita is $2000. It’s the people who earn Rs. 200,000 a year that drive the economy.

Listen to this guy, he has a message for you guys. Check this video:https://www.youtube.com/watch?v=Ao2E937Ebuc&ab_channel=IndiaToday

DO NOT MISS OUT on this major financialization of our economy. India and compounding are going to be good friends for the next decade.

THE MICRO: How do we make money?

  1. Buy Quality & Growth:As long as the sales and profitability of a company keep on increasing the price will follow. Valuation is important but ITS OKAY to buy stocks at expensive valuations. Remember, PE ratio is calculated based on current earnings. Analysts calculate PE ratio based on 2 or 3 years forward earnings. Companies that grow for the next decade will surpass its 2 or 3 year forward earnings by a mile! Also we haven’t even seen what euphoria looks like. Chances are you will see far higher valuation multiples on companies that continue to grow in the future.
  2. Ability to increase allocation to equities on corrections: I Professional investors who understand and are able to quantify risk, should definitely use leverage to their advantage. For people who do not want to leverage, should have a mechanism to allocate more capital to equities out of other asset classes. A simple example would be to buy Nifty ETFs to the tune of 10% of your current equity portfolio every time the markets fall 15% from its highs.

Parth Kotak, CFA, MSc. Finance.31th Aug 2022