I am not sure what should be the correct heading for the blog, “Economy of Size” or “Economy of Growth”! We should not much bothered for words. However, I think, some words make a lot of difference.
The US market is large in size and Equities are traded at higher PE. In India, we have growth but equities are not traded at higher PE. Why US stocks are traded at higher PE when the economy there is sluggish? The reason is many US companies earn profit from their operation outside US. So no matter how US economy performs, companies’ profit from world economy matters to them.
The second question is, why some Indian stocks are available at cheap valuations? I think India is emerging country. The foreign institutional investors allocate some percentage to invest in India. Their confidence has to be built over a period of time. Thus, the first entrants will get benefit of pricing. Even Waren Buffet has decided to enter heavily in India when the market is six times higher than 2003 level.
For investors, success is to find opportunities to visualize more opportunities and to give time to these opportunities to grow. India is country of opportunities. There are lots of points to criticize in India like Indian system, Indian politics, Indian bureaucracy etc. But the real connoisseur will find gems from the stones. So the master stock picker will be front runner. The story of success depends on story of growth. Once in joint meeting, Mr. Sandip Sabharwal said that money will follow growth. So find out growth and not size. Once you have good growth opportunity, everything will follow.
India has largest young population in the world. This generation lives with one mantra “SPEND”. So the word “EMI” is more popular to youngsters than “SIP”. The corporates know it and they always capture every opportunity to be in eyes and minds of young generation whether it is cricket, bollywood or any other means. Today’s young generation who starts working sees high ambitions. On very first month of working they targets car and own a house. After 1 or 2 year when they have adequate capital they get Car loan or home loan in order to achieve their ambitions. Now they pay EMIs every month. I define EMI as Spend today, Pay later and Pay interest. Isn’t it a business of loss? What if the youth starts doing SIP and saves money for 10 years. He can have car with surplus money having earned the interest. I define SIP as Save today, Spend later and Earn interest.
While Son and Daughter are busy in spending, The only option left for the “Poor dad” is to ride the Indian growth story by investing in the equity market with at least little amount using SIP to keep pace with the growing market. Then only the “Poor Dad” will become a “Rich Dad”.
In recent union budget, a major positive impact on mutual fund is now foreign investors with KYC compliance can directly invest in SEBI registered mutual funds. This will still take some time to overcome issue of currency volatility. But it will result in source of funding to India’s account deficit and huge amount for AMCs.
The budget has got some more attractions for those who have taste in Infrastructure bonds / investments. It is proposed in the budget to introduce Rupees 30,000 crore bonds issued by government undertakings which is to encourage domestic investors. On the other hand, to encourage foreign investors and to enhance flow of funds in infrastructure sector, the budget has increased the ceiling limit for FII from 20 Billion US$ to 25 Billion US$ in corporate bonds.
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Thank you,
