august-08 presentation by mr prashant jain

8/14/2019 August-08 Presentation by Mr Prashant Jain

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1

Equities are unique assets that investors feel more

comfortable buying at higher prices and selling at

lower prices


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2

Net Inflows in Equity Mutual Funds andBSE Sensex

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

0

5000

10000

15000

20000

25000

Net Inflow s (Rs. In crs) - LHS BSE SENSEX - RHS

Source: www.amfiindia.com, www.bseindia.comEquity mutual funds include Equity, Balanced and ELSS Funds (AMFI Classification)CY2008 figures as on July 31, 2008


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SENSEX vs GOLD(July 31, 1988 July 31, 2008)

Source: Bloomberg. Period July 31, 1988 July 31, 2008.Returns are compounded annualised. Gold returns refer to returns in INR.$/oz Dollars / Ounce


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5

The Indian Growth Story

6.06.25.5Indonesia

4.15.05.0Korea

5.35.95.9Malaysia

6.07.97.9Singapore

4.66.06.8Hong Kong

7.89.09.4India10.011.411.1China

Regional Economies

0.91.72.4Japan

1.52.62.9EU

1.92.22.9US

Global Economies

2008E20072006

GDP Growth Rates Forecast (%)

India is now a trillion dollarIndia is now a trillion dollar

economy. Growing at 7economy. Growing at 7--9% p.a.9% p.a.

Source: CLSA Estimates

Size and growth make India a compelling asset.Size and growth make India a compelling asset.


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India transitioning to a large economy

2 0 0 6 G D P

( U S $ b n )

5 y e a r

C A G R

2 0 1 1 G D P

( U S $ b n )

U S A 1 3 , 2 0 2 3 . 0 1 5 , 3 1 3

J a p a n 4 , 3 4 0 1 . 8 4 , 7 4 6

G e r m a n y 2 , 9 0 7 1 . 1 3 , 0 6 3

U K 2 , 3 4 5 2 . 5 2 , 6 4 7

F r a n c e 2 , 2 3 1 1 . 5 2 , 4 0 6I t a l y 1 , 8 4 5 0 . 7 1 , 9 0 7

C a n a d a 1 , 2 5 1 2 . 7 1 , 4 3 3

M e x i c o 8 3 9 2 . 8 9 6 3

B r a z i l 1 , 0 6 8 3 . 2 1 , 2 5 2

0C h i n a 2 , 6 6 8 1 0 . 0 4 , 3 0 1

I n d ia 9 0 6 7 . 8 1 , 3 1 8

India is fast catching up with the bigger economies of the world due to the higher

growth rates. The Indian economy will be one of the biggest among developed and

developing countries, nearing that of Canada in the coming years.

Source: Based on recent data from Bloomberg

(Estimates)


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Economy Review

Stable Consumption demand Robust Investment demand

Real estate is facing large slowdown (actually very

positive for long term growth)

After a moderation in FY09, growth rates may

accelerate from FY10 onwards.


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Indias vulnerability to oil

Higher Current

Account Deficit

Higher Fiscal

Deficit

High Interest

rates, Inflation

High Oil prices

Adverse effect

on Equities

Equity Markets are forward looking, hence most probably have bottomed out


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Impact of oil

Indias vulnerability to oil has been a major concern, particularlyfor the FIIs Oil consumption ~7% of Indias GDP

World average ~5%, US 5%, China 7%

Oil Imports - 30% of Indias total imports in FY08 Gross Oil imports = $77bn in FY08 (net imports (E) - $58bn)

FY08 avg price = $85/bbl

At avg $110, FY09E oil imports to rise $20bn (2% of GDP)

Large subsidy bill FY08 Rs.770bn ($19bn)

FY09e Rs.2trillion ($50bn) @ $125, ($1/bbl = $600mn of subsidy)

Fuel & Light - 14% weight in WPI


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Oil Has it peaked?

Sharp correction in crude prices

Slowing global growth, stability in USD,suggest best of commodity prices are behind

Source: Bloomberg

As on August 15, 2008


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World Oil consumption

Low savings & lower growth rates should impact oil demand in US/Europe

(50% of consumption)

Source: BP Amoco


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Oil on one side demand is slowing

Global oil demand is slowing down US of global oil demand, negative growth for past several months

OECD 60% of global demand, negative growth in recent past

US - Weekly Product Supplied (kb/d)

19,000

19,500

20,000

20,500

21,000

21,500

22,000

Jan Feb Mar April May June July

2007

2008US oil demand de-growth

avg 3% in past 2Q

Source: DoE, IEA, Broker estimates


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Oil on the other, supply is growing

Demand-Supply mismatch is easing Non-OPEC supplies expected to grow by ~1.1mbd in each of 2008 & 2009

OPEC oil production assumed steady at 2007 levels, however OPEC NGLprodn expected to rise ~1mbd

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2007 2008e 2009e

Incremental supply

Demand growth

Incremental World Oil Supplies (mb/d)

Source: DoE, IEA


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Institutional flows to equity markets

FII are possibly under-weight India

Movement of MSCI Emerging market

900

1000

1100

1200

1300

1400

1500

8/13/2007

9/3/2007

9/24/2007

10/15/2007

11/5/2007

11/26/2007

12/17/2007

1/7/2008

1/28/2008

2/18/2008

3/10/2008

3/31/2008

4/21/2008

5/12/2008

6/2/2008

6/23/2008

7/14/2008

8/4/2008

Index

poin

ts

Emerging marekts are down 20% in CY 2008

Some broad numbers

Holding on Dec-07 $360bn

(-) value drop (30%) $108bn

(-) 10% INR apprn $ 25bn

(-) actual sale $ 6bn

Current value (est) $221bn

FII exposure to India down 38% in CY-08

MSCI Emerging markets Index down

20% only

Source: Bloomberg, Internal Estimates


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Results Update 1QFY09

Earnings surprise positivelyProfit growth for the Sensex companies at 16.7%, sales growth at 31.3%.Profits clouded by forex losses, unlikely to repeat if currency remains stable

Adjusting for the forex losses earnings grew at a robust 26% YoY.

Sensex - June-0 Growth %

Sales Turnover 31.3%EBITDA 21.4%Other Income -9.4%Interest 31.6%

Depreciation 17.9%Tax 1.4%Net Profit 17.5%Net Profit (incl. Fin Cos) 16.7%Net Profit (Adjusted for Forex) 25.6%

Source: Merrill Lynch


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19

Sensex reverts to attractive P/Es

0

5,500

11,000

16,500

22,000

96 97 98 99 00 01 02 03 04 05 06 07 08

BSE

Sensex

30x 25x 20x

15x

12x

BSE Sensex one year forward P/E(x)

Source: CLSA Asia-Pac Markets

As on August 21, 2008


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Outlook for Equities

Indias Growth Premium has fallen

Country Fwd P/E Fwd P/EJuly 08 Jan 08

USA 12.5x 13.6x

Japan 11.2x 13.8x

China 13.8x 21.5x

India 14.2x 20.4x

Source: CLSA Asia-Pac Markets

Markets are fairly valued; mid caps are under valued Room for some P/E expansion (particularly if interest rates fall) in addition

to EPS growth


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Conclusion

Deep pessimism has given way to cautious optimism

Favourable developments FIIs Under- weight India

Decent cash balances of local Institutions

Poor supply of new stocks

Dividend Inflows ($10 bn) Ranbaxy Buyback $1.7bn

Risks/concerns

Further increase in Crude prices Populist measures/ government policy

Maintain stable outlook with positive bias.

Mid caps should outperform


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Inflation & Equities

Inflation measures rate of change. Even at current prices,

1year later, rate of change will be zero. Inflation should bemuch lower after 1 year

Equities are a hedge against inflation. Companies over

time pass on the cost increases, maintain real growth and

thus real returns


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Finally, in the last 20 years,

weve seen .Wars, terrorism, droughts & floodsAt least two major financial scandals

Assassination of 2 prime ministers

At least 3 recessionary periods

10 different governments and

Sept 11th , Pokharan blasts etc

Yet, GDP has grown nearly 15% p.a. and the Sensex by 19%p.a.


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NO. YEAR END SENSEX ROLLING 1 YR ROLLING 5 YR ROLLING 10 YR ROLLING 15 YR

GROWTH GROWTH GROWTH GROWTH

0 Mar-79 100

1 Mar-80 129 29%

2 Mar-81 173 34%

3 Mar-82 218 26%

4 Mar-83 212 -3%

5 Mar-84 245 16% 20%

6 Mar-85 354 44% 22%

7 Mar-86 574 62% 27%

8 Mar-87 510 -11% 19%

9 Mar-88 398 -22% 13%10 Mar-89 714 79% 24% 22%

11 Mar-90 781 9% 17% 20%

12 Mar-91 1168 50% 15% 21%

13 Mar-92 4285 267% 53% 35%

14 Mar-93 2281 -47% 42% 27%

15 Mar-94 3779 66% 40% 31% 27%

16 Mar-95 3261 -14% 33% 25% 24%

17 Mar-96 3367 3% 24% 19% 22%

18 Mar-97 3361 0% -5% 21% 20%

19 Mar-98 3893 16% 11% 26% 21%

20 Mar-99 3740 -4% 0% 18% 20%

21 Mar-00 5001 34% 9% 20% 19%

22 Mar-01 3604 -28% 1% 12% 13%

23 Mar-02 3469 -4% 1% -2% 14%

24 Mar-03 3049 -12% -5% 3% 15%

25 Mar-04 5591 83% 8% 4% 15%

26 Mar-05 6493 16% 5% 7% 15%27 Mar-06 11279 74% 26% 13% 16%

28 Mar-07 13072 16% 30% 15% 8%

29 Mar-08 15644 20% 39% 15% 14%

28% 19% 18% 18%

10/29 3/25 1/20 0/15Probability of Loss

Average Return

Past performance of the SENSEX may or may not be sustained in future

*Returns for the 1 year period are absolute

**Returns for periods more than 1 year are shown on a compounded annualised basisNote:

The base year of the SENSSEX is 1978-79 and the base value is 100. Please visit www.bseindia.com for the SENSEX calculation methodology


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Thank You


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august-08 presentation by mr prashant jain

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