>Key Ideas From Money Monarchs

Since the Mind cant hold too many things here I try to distil the important words and ideas from India Money Monarchs which I think are important and need follow up thinking. We would come again to see more on this.
At the end a small note from me on what come to my mind now after doing this cut-paste work..!

Rakesh Jhunjhunwala

1. I think the momentum in the Indian economy now, is like never before. With every passing day, every Indian is getting more confident. This itself will contribute to the growth of the economy and the momentum. We are still in the structural secular bull market. And I don't think something can slow it.
2. We are entering the first stage of the domestic inflows. The moment the investors gain, they will invest more. And I think there is humungous domestic money to come. Unimaginable. You know Indian savings in 2010 is projected to be $410 billion. If 10 per cent is to flow, it will be $40 billion.
3. Two things worry me. First , the world economy, because I think American consumption has to come down. How it will come down, how global currencies will realign, what effect is it going to have on global demand, that's going to be very important. The American economy is going to tank in my opinion. When that happens, it will have a big effect on the sentiment towards equity. So we must be alert.
4. Second, I think oil prices beyond a point are going to lead to higher inflation and higher interest rates.
   
5. Corporate profit growth in India may slow down. But if the essential story of an improvement in quality of profits, higher consumption, and a growth rate of 8 per cent is intact, I don't think a fall from 25 per cent growth in profits to 15 per cent is really going to disturb the market. It is events outside of the market, which will shake the confidence and also affect corporate profits substantially that would worry me.

Raamdeo Agarwal

1. This is a very strange time when all assets are at all-time high. Four or five years back if somebody had said that oil is going to $70, I mean would you touch stocks? Common sense would suggest that you should be out of stocks. But when oil hits $70, the stock market also hit an all-time high. I think, it is because of global liquidity. Like Warren Buffett has said, at any point of time, the tiniest change in the interest rates will change the value of every single form of asset in every part of the world. And I think it's coming true. The world is floating in liquidity.
2. Equity allocation is most irrational not only in India but all over the world. The highest allocations come at the peak of the market. And the lowest allocations come at the bottom of the market.
   
3. If you see the RBI data in last 10-15 years, I think financial investing constitutes about 0.2 per cent of the total GDP. When our savings rate has gone up to as high as 30 per cent, your risk-free return has come down from 15 per cent to about 5-6 per cent. When your risk-free return is 5 per cent, you equity allocation has to be the highest. But unfortunately, allocation is still low. So, it is very clear that people understand only price. Fortunately for three consecutive years we have had a fantastic rise, first year 85 per cent, then 16 per cent, and now close to 40 per cent. Now people are realizing that bank deposits at 5-6 per cent are not worthwhile. Let's look at the Indian stock market.I think this is not the best time to buy into the stock market. I'm not saying that we are beyond the interval or anything like that. But what I am saying is that if allocations increase, it could really blow up.

Sanjoy Bhattacharya:

1. If you look at Indian Mkt from the context of the next decade or the next 15 years, there is absolutely no doubt about how markets will move. And I'm proud to be an Indian today. This is a very exciting country to be in right now.
2. A hell of a lot of growth that we are going to see in the next two or three years is not going to be profitable growth, but unprofitable growth.

Bharat Shah:

1. In the context of the life of a country or our own investing life, one year is not so critical. I think there is huge opportunity for compounding, whether this year will be it on not, I don't know, but I certainly do believe that for next few years that these are great money making opportunities. There are some outstanding opportunities, in every bull market and there are ideas -- ideas which are still attractive. And in every bear market there are some overvalued businesses. I don't see that changing now.
2. From 1997-98 which was roughly the time when good companies decided they had to ramp up, cut costs, become efficient,go global, improve manpower quality, raise the asset efficiency, improve working capital efficiency and all of that. Many good companies have done that, and used capital very wisely. They didn't really inject any money in into the business, and turnover grew modestly but the profits grew much faster.
3. From around 2003 onwards we are seing companies putting more money into the business, they are raising the scale and that's the phase that we are seeing a little bit more of capital intensity creeping into the overall corporate environment.
4. I think in these 2-3 years, the easy pickings of the earlier years have gone and that was a phase where x percentage growth in topline produced x plus y percentage growth in operating profits and disproportionately larger x+y+z kind of effect at a pretax profit level. So companies did extremely well on the bottom line front. I think last couple of years, we are seeing a mild correlation of x percentage growth in topline leading to maybe a modest x+y percentage growth in profits. Going forward, I think there is every possibility for many of the businesses that x percentage growth in topline will mean x minus y in the bottom line. And I think it is important to be aware of that. You don't want to be touching the ones who are embarking on capex, but you want to hunt for the businesses receiving capex. So rather than hunting for Tiscos of the world who want grow their capacity 10 time in next 15 years, I would probably like to look at businesses which will benefit from that.

R Sukumar

1. I think the market is being driven by the fact that India was totally undiscovered and there is money coming in and I think this is the tip of the iceberg. It's going to be much much bigger and when you really look at the demographics and the implication it has on the savings rate and the type of money that people can put into the market over the next 20 or 30 years, the amount can be mind-boggling. The money that is coming into the equity market is obviously increasing.
   
2. My rough estimate is that there is about $1 trillion with the households currently. So every one percentage point shift could mean about $10 billion of flows into the markets. And if you assume it's going to be a 10 per centage point shift, we are looking at $100 billion. And FIIs in the last 11 years haven't put in $100 billion. So, I think from a pure demand perspective, it's going to be pretty mind-boggling over a period of time.
3. In the long term, innovation will ensure that oil price is not going to impact the economy too badly. But from short to medium perspective, innovation is not going to help.
4. We are in the business where we are saying don't come to the market unless you're looking at 5 and 10 years. So to speak about 2006 I think is plain unethical. But if you look at 2006, I don't see the foreign inflows increasing dramatically.
5. From a domestic point of view there is scope to increase and we are seeing some signs of increasing. So I think both are positive.
   
6. I think oil is definitely a short to medium term worry.
7. The worry is clearly that the supply pipeline is building faster and there is a lot of incentive for a lot of promoters who don't really create value to raise capital at this point of time. Whether it happens or not I think is the issue.

Madhu Kela

1. I am very optimistic on the real estate sector.
   
2. One, when I look at the overall market cap of real estate companies in relation to what the overall market cap of the India is, it's disproportionately low.
3. Second, you know as Rakesh said that crooks become honest when they become wealthy. And the markets have proven many a times that too much emphasis on that honest management may help you talk good but it doesn't help you generate good returns. So you have to look at managements which can deliver. And look at the size of the economy and look at the size ofreal estate development which has happened. Look at -- you know Hong Kong is a $200 billion economy, Singapore is $125 billion economy -- when you go into these countries, look at the kind of real estate development which has happened. And look at -- we are going to be $1 trillion economy in the next couple of years and the state of real estate development in our country. And that is what I meant when I said we look at external opportunity. The opportunity looks staggering. Now, our job is to find that hungry promoter and buy it at the right value. And sit tight.
4. I think the pace of infrastructure development in our country is what is really worrying me a lot. The pace of the whole infrastructure unbundling has to happen much much faster than what we have seen.
5. The companies which are benefiting out a domestic economy expansion and are benefiting out of domestic consumption will continue to do well. The other thing which I have been quite positive over last 2-3 years and continue to remain positive on the outsourcing opportunities minus IT. Pharmaceuticals, auto ancillaries, there are lot of sectors which are opening up -- and most ideal placed companies are wherever you have 60-70 per cent turnover coming from the domestic side of the business and 30-40 per cent turnover coming from the export side of the business. And the size of the export opportunity looks very large.
6. I think you have a look at the sum total of investing in your favor. You can't look at oil in isolation. Because if you looked at oil in isolation, you would have been worried even at $50 and would have been sitting on cash. The reality is markets have moved up 50 per cent and oil has also moved up by $20. So as long as the sum total of investing remains in your favor, oil in isolation will not be a big worr

Prashant Jain

1. When we look at risks, we look at two things. One is event risks which impact the sentiment of equities globally or locally. And second is events or factors which will impact the earnings growth or the economic growth of country.
2. We don't see many risks which will reduce or impact the economic growth in this country on a sustainable basis. I mean to put things in perspective if you go back 20 years oil used to sell for may be Rs 10 to a litre. Today it is Rs 45 to a litre. So clearly it has not impacted economic growth.
   
3. I think oil impacts us two ways. One is it increases inflation world over, but it does not put our companies at a comparative disadvantage to others. Because cost of production is the same. And second is it reduces consumer surplus. Which again I don't think is very relevant in the Indian context because such a high savings rate and such a high growth in income.
   
4. That is why oil even if it spikes, it may impact the sentimental equities, but I don't think it will have a lasting impact on corporate profits or economic growth over even a 2-3 year period. So, I don't see too many events which will reduce the economic growth potential in this country. But sentiment could suffer. I mean if I think if something happens in Iran or Iraq or generally sentiment towards equities worldwide turns bearish. I think today we are far more globally integrated, we see huge amount of capital inflows. So I think if the sentiment towards equities deteriorates, we will suffer. But I don't see any concern as far as economic growth is concerned.
5. What has happened in the last two or three years is that PEs were very low and because of deleveraging, improving cost efficiencies, falling cost of borrowings, the profit growth has been disproportionate. And as Indian stock markets have been discovered by the locals and the PEs are now quite reasonable.
6. Number one, I think going forward we will see profit growth is slowing down, And number two, the profit growth will not be uniform all across sectors. But regarding stock prices moving by 20-30 per cent in a month or in a matter of weeks, I think it is always like that. You may hold a stock for three years but in 10 per cent of the days, it will give you bulk of the returns. So I am not particularly worried about Siemens going up by x percent on a particular day. But one thing what I am sensing is in the market is that the premium for quality has certainly shrunk. And as an investor or a manager, what I'm trying to do at least is to focus more on the quality. And I think, big money is over.

My Take:

1. We had a high-tide mkt for last 3-4 years. Anything and everything has gone up.
2. In the latest quarterly or semi annual reports which come up we see lower profits, some companies even show -ve growth in sales.
3. Many companies especially in commodity area are talking of huge expansions and capex.
4. FII inflows have made new records.
5. As Proff. Sanjay said, a lot of growth we see in future is not going to be profitable growth.
6. What to do now?
1. Turn defensive.
2. Listen less to great growth charming stories.
3. Look at companies which can sustain their margins while they grow.
4. Find companies which dont take a ton of new loans to finance growth.
5. Find companies which have generated above average return on Total Enterprise Value.
6. Again in case we see a down cycle which last for say 2 years, come back to growth stories and listen to them when no one would trust them.
7. For now use 2-3 layers of Protective Rubber..!!