Market falling despite strong & improving fundamentals; making it a “Rare Opportunity” to invest
5 reasons why you should be buying Equities in this correction
- Near-term woes unsustainable – Dent on consumer spend and overall GDP growth will be extremely short-lived. Once people have realigned their idle cash through depositing it in banks as per RBI guidelines, this money will be “put-to-use” – by spending & investing. Money, hence, will come back into circulation.
- Stashed away black money to come into circulation boosting GDP – To the extent of black money stashed away, the government will get a “Special Dividend” from the RBI which will be used towards boosting the overall GDP, through a combination of – social sector spends, infra spends, recapitalizing banks and setting off against fiscal deficit.
- Sound & Improving Macro-economic fundamentals – Flush of deposits will mean lower interest rates, a view echoed by all our country’s leading bankers. This along with favourable monsoon implies lower inflation. Add to this GST implementation is under way. A culmination of the 3 will be a major boost to the economy which could lead to Real GDP growth rates more than 10% p.a. over the next 2 years or so.
- Equities to be the most attractive asset class – With declining yields on Fixed Deposits and uncertainty around other physical assets – gold and real estate, this large corpus of funds deposited in banks through de-monetization will have hardly any choices left for investments. We see “Equities” being the biggest beneficiary and is expected to see sharp increase in asset allocation.
- Sensex Valuations highly attractive – Our estimates suggest Sensex valuation at about 18xs FY17 on thrashed down FY17 EPS est. of Rs. 1400/- incorporating weakness in Q3 & Q4-FY17 results due to demonetization effect. This is within the historical index multiple of 18-20xs. Assuming even a conservative 15% YoY growth rate in FY18, implying FY18 PE of 16xs and an upside potential of 15-50% over 6-9M. In our opinion, these are very attractive levels for the market and we would strongly recommend using this opportunity in owning stocks.
- What will be the effect of Demonetization on the Indian Economy?
Quick MATH of Demonetization –
The government has pulled off arguably the most significant reform measure in its tenure. While this expeditious move to boldly counter the black money and parallel economy threat is likely to have near-term repercussions, importantly, this effort will have a visible impact on how the current government’s policies are perceived in international circles of economic power. In our opinion, most of the macroeconomic impact will be felt in the short-term, though there are larger beneficial implications in the medium to long-term. We have tried to answer some of the more immediate questions below click here to read the full article
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Team Research & Ranking