Ridham Desai, Managing Director of Morgan Stanley, gave strong logic in June 2012 to support his hypothesis that the time is ripe for investors to buy stocks.
He pointed out that all the bad news had been factored in and that the valuations were at trough levels.
“If investors buy now, they can make about 40% returns with nearly 95% certainty. Investors are almost guaranteed positive returns” Ridham Desai said, with a sparkle in his eyes.
Ridham Desai was so right. Since then, the markets have been very strong. While the Index has nudged up about 10%, several individual stocks have crossed their 52 week highs.
Anyway, the question is now about the future.
Ridham Desai expressed confidence that “the next year is going to be probably as good if not better” and again gave strong logical reasoning to support his theory.
First, Ridham Desai pointed out, the valuations are lower than fair territory in the context of the expected earnings. He explained that there were a lot of indicators that suggested that corporate earnings had bottomed out and would begin to look up. Some of these indicators were that the terms of trade have improved, the rupee is no longer over valued, the investment rate seems to be stabilizing.
The consequence of all the positive indicators is that corporate margins would improve and if that happened, stock valuations had to keep pace, Ridham Desai explained.
Second, Ridham Desai also emphasized that India’s tail risk caused by policy inaction of the Government also is considerably lower than last year. Now, the Government had come out with all guns blazing on the policy front and this was very positive as well.
He also pointed out that the other factor that would increase corporate earnings, and improve sentiment is the reduction in interest rates. RBI’s Governor Subba Rao has already sent out a strong hint that 2013 will be the year that the RBI begins to reduce rates.
When that happened, there would no looking back for the stock prices, and investors who were sitting on the side lines would feel very sorry for themselves and have only themselves to blame, Ridham Desai hinted.
So, stop being cautious and start investing in top quality stocks without further delay.