Most amateur investors are feeling wary of investing in stocks at present in the belief that stock prices have run up and are expensive on the basis of the expected earnings. However, this is not correct say Prashant Jain of HDFC MF, S. Naren of ICICI MF, Mahesh Patil of Birla Sunlife MF and Harsha Upadhyaya of Kotak Mahindra MF in their latest interaction with CNBC TV18.
Their advice can be summed up in clear-cut actionable points:
The market is up only 30% in 7 years. The present rally is a mere catch-up of previous years’ under-performance:
The Sensex is presently at 28,000. From January 2008 (over the last seven years, pre-Lehman crises), the market is up only 30 percent. However, the nominal gross domestic product (GDP) in rupee terms is up more than 100 percent. This means that the market has played a catch-up in the last one-one-and-a-half years.
Stocks are reasonable valued:
The price to earnings (PE) multiples are a fairly reliable indicator of how market tends to behave in the future over one to three year periods. If you look at the current PE multiples despite markets trading at 28,000, PEs are not expensive. They are quite reasonably valued. Interest rates are sitting at near peak and should move lower, economic growth should improve.
Strong earnings growth is expected. There will be an expansion in the EPS of companies:
The earnings growth momentum will probably pick up towards the end of this financial year. The commodity prices which actually took away some of the profits of Indian corporate will start acting as a positive trigger; they will start aiding margins going forward. We have also started seeing some amount of pickup in terms of government spend and there is some amount of volume growth. The operating leverage will kick-in and we will start seeing better numbers.
The market is in transition, the economy is improving. We will see economic improvement in the current year. Few lead indicators are already telling us that. Yesterday I met a company and they said that now trucks are not available, there is a waiting period of two to three months. I think we are seeing very good traction in roads, railways, in power transmission and distribution (T&D).
In the next few years the earnings growth should be very strong.
Invest in stocks with the long-term in mind:
Equities are a volatile asset class in the short run. It does not make sense to focus too much on the short run. The short-term focus takes people away from long-term substantial profits. Equities are a good promising asset class with a one-three year view.