Ridham Desai was the second speaker at the Morningstar India Conference on 11 Oct, 2017 at Grand Hyatt, Kalina and as expected spoke well. Some take aways…
caveat: Rakesh Jhunjhunwala, Ridham Desai, Ramdeo Aggarwal, ….are the perma bulls of India.
Naren, PJ, …also are bullish more than bearish..and all are equity oriented in their personal lives also. Fairly obvious, but you guys reading this should know.
Ridham has awesome communication skills – his reports and books are surely worth reading. I have made this in point form (sheer laziness)…but please read it a few times till you understand. What RD said was awesome.
Some take aways:
We have 40 years of Sensex history and 100 has become 32000 – what more do you want?
We have had 4 bull runs…1979 to 1985, 1988-1992, 2003-2007, 2008-2017
the 2008-2017 current bull run is the slowest, most boring bull run. Not as sharp as the other bull runs…
He said the reason why people get good returns in equity is that during the deep draw downs you need to keep silent and quiet.
People say ‘market is driven by Liquidity’…
Ridham said “for every seller there is a buyer” – so money never comes into the market or leaves the market.
he said force of the buy or force of the sell – bid and offer – decides whether it is a buy driven market or a sell driven market (this is awesome read it again)
Valuation: If earnings are low, PE will look high (again awesome). When Earnings go high, PE will look low. Once RD says this, it looks obvious, but not so intuitive.
remember market is a forward looking animal waiting for Earnings to improve.
PE is not as good a measure, he says use Price to book value. He says according to PB we are at the middle..not at a mouthwatering buy for sure, but nowhere near the top. Nowhere near the top.
He said “Valuations are useful only at the extremes”. I also feel that ‘Valuations are useful only when you own the index”. In the last one year many of my shares (like Coro International) have done much better than even the rockstar – banks!
Is the market too high? Ridham said – Interest rates are 6.5% – this means 100/6.5 = 16 pe. So if a capital protected asset is at 16 pe an increasing return appreciating asset should be at a pe of 18…or 20…and we are there – another awesome observation.
What to do to earn money in the market?
Sit tight. He said market will go to 100,000 in 5 years time. Ignore that. Even assuming it goes to 60000 it means about 14% cagr. Not bad at all.
Do not try to time the market…and what to look for
look for companies with good eps/ good price to book value/ and growing dividends
change in Roce is important – the incremental roce is important
look for EV/EBIDTA
is the leverage falling?
is the company adding to its gross block without adding to leverage?
beta < 1.1
starting level or ROE or ROCE does not matter
10 years nifty returns is ‘0’ (zero)…TRI could be 3%…
10 year bond return is 8%.
2007 market was spiking ….
2017 is different..
target: 12-13% going forward….
Positives: Jandhan Aadhar Mobile – awesome penetration
Internet usage – more users than population of USA
Rera, gst, demo, – short term growth concerns….
GST implementation is much much better than what we thought.
Equity returns will be lumpsum…it is ALWAYS non linear…
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