RJ Iris Equity Seminar

IndiaThe Structural and Secular Bull Story: 

India The Structural and Secular Bull Story A presentation by Rakesh Jhunjhunwala Time for Introspection

Outline: 

Outline The Bull Market The Correction Drivers of the Bull Market Deductions Risks Possibilities Investment Attitudes

The Bull Market: 

The Bull Market

The Correction: 

The Correction Corrections always have two dimensions - Price and Time Price correction: 35% of the gains upto May-06 Gains of last 5 months out of the 37 months have been lost in the correction Time correction: Underway Worst Excesses IPOs, Real Estate stocks, Micro Caps Sensex Delta Decomposition

Drivers of the Bull Market: 

Drivers of the Bull Market India’s economic growth Superlative corporate performance Market architecture and infrastructure in place The tectonic shift of imperatives to invest in emerging markets Vast under-exposure to equities in India

Slide6: 

All major drivers for the structural and secular bull market are in place, are they?

Drivers of the Bull Market: 

Drivers of the Bull Market India’s economic growth Superlative corporate performance Market architecture and infrastructure in place The tectonic shift of imperatives to invest in emerging markets Vast under-exposure to equities in India

Deductions: 

Deductions After the unprecedented rise from 6000 to 12600 in 12 months, and excesses becoming apparent; it was rational that the exuberance was corrected The intrinsic structural and secular bull market story is very much alive and kicking Corrections / Consolidations are part and parcel of all bull markets and they cleanse interim excesses How far and how deep the price correction, and how long the time correction / consolidation will last are anybody’s guess Historical valuations range suggests that in absence of earnings damage, Sensex would trade with the 9250-9750 range acting as a strong support Markets are not going to make a new high in a hurry

Risks: 

Risks Risks to Earnings Growth Input prices Global slowdown Interest rates Politics in India Risks to Valuation and Sentiment Global Asset Allocation shift Global and Domestic liquidity Growth perceptions Currency and Current Account deficit Interest rate All these risks can only temporarily impact, and not reverse, the basic direction of earnings, valuation and sentiment

Possibilities: 

Possibilities Base case 2007 Sensex EPS of Rs 662

Investment Attitudes: 

Investment Attitudes Despite all-round optimism and unprecedented gains, never forget the 4-letter word associated with equities – RISK. As a trader, react to Price. As an investor, react to fundamentals. Don’t always react to the apparent, or with the herd. Investing success is not a one way street. Its not about buying the optimism and selling the pessimism. Superior Investment returns are not gained without pain, time, introspection and doubt. Expect realistic returns, this is not a Casino. Be Greedy, But be Long-term Greedy. Despite All-round pessimism, never forget the opportunity in equities.

“I believe that the secular and structural bull market is very much alive and kicking. Although factors known / unknown may slow it, it will really need God’s wrath for it to be reversed prematurely”: 

“I believe that the secular and structural bull market is very much alive and kicking. Although factors known / unknown may slow it, it will really need God’s wrath for it to be reversed prematurely” Thank You

India’s Economic growth: 

India’s Economic growth Democracy Skill-sets Entrepreneurship Demographics

India’s Economic Growth – So far: 

India’s Economic Growth – So far Structural and Secular Change driving growth Productivity: Airfares half, Passengers manifold Lowest Costs: Mobile costs lowest, Mobile companies profitable Confidence: Indian companies acquiring globally Consumption: Discretionary spends rising, Organised retail exploding, Brands flourishing Savings: Driven by better demographics, lower Govt deficits Growth is a result of above factors, not prices of natural resources (eg. Russia, Australia) Growth in spite of Constraints Infrastructure Policy environment Change  Irreversible and Inevitable Temporary blips possible, which may lower pace, or create doubt

Superlative Corp Performance: 

Superlative Corp Performance

Superlative Corp Performance: 

Superlative Corp Performance

Market Infrastructure in place: 

Market Infrastructure in place Infrastructure for equity flows in place Modernised trading system + Dematerialisation Competitive private sector Mutual Fund industry Effective Regulatory environment Corporate governance thru market’s sword Tax paradise Short term capital gains at 10% No Long term capital gains tax Dividend tax free

Tectonic shift to Emerging markets: 

Tectonic shift to Emerging markets Developed countries have an ageing population with rising life-expectancies and prohibitive healthcare costs resulting in huge pension deficits make the quest for superior returns imperative Superior economic growth, Globalisation, better capital access, freer movement of capital, improving corporate governance and regulation in emerging markets, market influenced exchange rates, converging and aligned interest rates have made emerging countries an asset class that cannot be ignored by asset managers

Tectonic shift to Emerging markets: 

Tectonic shift to Emerging markets Real GDP Growth Rates Comparison – Developed Countries vs. Emerging Countries

Under-exposure to equities in India: 

Under-exposure to equities in India

Under-exposure to equities in India: 

Under-exposure to equities in India Savings explosion combined with poor equity exposure Limited investment alternatives Equities are most tax efficient asset class for investors Under exposure to equities will be inevitably corrected