Dear Policyholders,
The Nifty is under attack and what should we make out of it. Let us see what we can do in respect of our funds under our ULIPs . I am doing the loud thinking to have a firmer opinion and list it below, pointwise :
1. Should one take some risk to avoid missing the bus when bullish moves come back, I think one should take some risk and get into equities because if the bench mark yield is 8.20 pc for 10 year paper and inversely it is 12.2 PE for it. We know that the PE for Nifty would be about 17 at the current level. There is however one difference between the two ie the PE for bonds would be static but for Nifty the growth in profits of whatever magnitude will bring the PE down every coming year. The trouble may come only when there is negative growth in profits of companies but that is unthinkable for the time being as the GDP growth remains above 8pc and expected to be so in near future.
2. There is fear that FIIs will sell further and dent Nifty. Here we seem to presume that FIIs are irrational entities and would not look at the value-price ratio while selling. In fact the sell off in 2008 was an exercise in irrationality caused by the collapse of financial system in US. There is no possibility of a similar event happening now or in near future, so down the line buying need will emerge with fall in prices beyond a level.
3. The domestic savings find way into equities to some extent and would add to demand for equities and not supply because Indian masses sell only at some profit and not at loss (short-term traders apart).
4. The follow-on public offering by companies over the last three years at premium have arrested the slide in such companies.
5. There is a lot of capacity creation by companies by ploughing back profits in to capex. This makes the base for greater profitability in good times and let's companies have assets that grow in value due to inflation but which show lower book-value due to depreciation adjustment. The writing-off cycle for most assets is far lower than the real life and residue for these assets.
6. Sector-wise :
Cement : this sector has been discounted in line with performance and should have good times ahead.
Banking : this forms a large part of Nifty and has been under price pressure though has delivered better numbers for latest quarter and no fear of further slide is seen.
Auto : this sector has seen great run-up and is on its way down which will have reached the safety point in a few more weeks. The high interest rate regime has cast some shadow on its growth prospect but the intensity of demand seen in past may not just die down so easily.
Telecom : the share prices of companies in this sector are at very low ebb already , if any thing , it may see rising fortune.
Infrastructure (including cap-goods manufacturers ) : this sector would grow in size always , the profitability may fluctuate , however, it has been robust. For example BHEL's quarter ended 12/10 delivered profit of Rs 1403 crs against Rs 790 crs of quarter ended 12/08 ( two year - double profit) .
Oil, Gas and Petroleum : this is represented by heavy -weights like ONGC and Reliance. Other are in marketing and have limited scope of going up or down. Both biggies gave out good results which are more than double of what it was in quarter ended 1208.
Pharma : this has many names with good track records, the Nifty has no worries on account of them..
Housing : this sector has little representation in Nifty and is one of the unstable ones. DLF is already down enough to worry for future.
IT : this has regained its importance and improved performance due to US economy on recovery path. They would progress and are on firmer ground. The profits have improved but prices are in normal range
Metals : there has been good capacity creation in this sector and profitability is OK, so, here also worries should remain at bay.
FMCG : this sector has best of the corporate level practices, HUL and ITC are very strong companies which would grow only in positive direction in future and keep Nifty in balance.
Power : the likes of NTPC have no parallel , the price also is on the lower side. With distribution and bill collection problems under check, power sector should remain OK and growing. Profitability of this sector is ensured.
(I have talked of sectors with particular reference to Nifty because HDFC Life's equity funds have bulk from the Nifty universe. The rest are very meticulously researched and collected and give the opportunity of beating the indices year after year. )
The Price to Book ratio is at historically low point and would put-up resistance against price fall.
The big fall in 2008 had occurred when the PE for Nifty was high at 27-28. The case is quite different this time. If there is over-selling , then the bears will take care of Nifty from going further down . You should have resurgent mood rather than sombre mood at present. This is my message. You are aware that any thing may happen , designed or otherwise , so you have to arrive at your own judgement before you convert idea into action.
The food and commodity prices have bearing on industrial economy and not so much on the rest like Pharma, IT, FMCG and services. High commodity prices give commodity producers to improve margins. High interest rates affect in a similar way. Since the industrial have far lower representation than they used to, the situation should not be taken to be very alarming.
With best wishes ,
Krishnakumar Khandelwal
The Nifty is under attack and what should we make out of it. Let us see what we can do in respect of our funds under our ULIPs . I am doing the loud thinking to have a firmer opinion and list it below, pointwise :
1. Should one take some risk to avoid missing the bus when bullish moves come back, I think one should take some risk and get into equities because if the bench mark yield is 8.20 pc for 10 year paper and inversely it is 12.2 PE for it. We know that the PE for Nifty would be about 17 at the current level. There is however one difference between the two ie the PE for bonds would be static but for Nifty the growth in profits of whatever magnitude will bring the PE down every coming year. The trouble may come only when there is negative growth in profits of companies but that is unthinkable for the time being as the GDP growth remains above 8pc and expected to be so in near future.
2. There is fear that FIIs will sell further and dent Nifty. Here we seem to presume that FIIs are irrational entities and would not look at the value-price ratio while selling. In fact the sell off in 2008 was an exercise in irrationality caused by the collapse of financial system in US. There is no possibility of a similar event happening now or in near future, so down the line buying need will emerge with fall in prices beyond a level.
3. The domestic savings find way into equities to some extent and would add to demand for equities and not supply because Indian masses sell only at some profit and not at loss (short-term traders apart).
4. The follow-on public offering by companies over the last three years at premium have arrested the slide in such companies.
5. There is a lot of capacity creation by companies by ploughing back profits in to capex. This makes the base for greater profitability in good times and let's companies have assets that grow in value due to inflation but which show lower book-value due to depreciation adjustment. The writing-off cycle for most assets is far lower than the real life and residue for these assets.
6. Sector-wise :
Cement : this sector has been discounted in line with performance and should have good times ahead.
Banking : this forms a large part of Nifty and has been under price pressure though has delivered better numbers for latest quarter and no fear of further slide is seen.
Auto : this sector has seen great run-up and is on its way down which will have reached the safety point in a few more weeks. The high interest rate regime has cast some shadow on its growth prospect but the intensity of demand seen in past may not just die down so easily.
Telecom : the share prices of companies in this sector are at very low ebb already , if any thing , it may see rising fortune.
Infrastructure (including cap-goods manufacturers ) : this sector would grow in size always , the profitability may fluctuate , however, it has been robust. For example BHEL's quarter ended 12/10 delivered profit of Rs 1403 crs against Rs 790 crs of quarter ended 12/08 ( two year - double profit) .
Oil, Gas and Petroleum : this is represented by heavy -weights like ONGC and Reliance. Other are in marketing and have limited scope of going up or down. Both biggies gave out good results which are more than double of what it was in quarter ended 1208.
Pharma : this has many names with good track records, the Nifty has no worries on account of them..
Housing : this sector has little representation in Nifty and is one of the unstable ones. DLF is already down enough to worry for future.
IT : this has regained its importance and improved performance due to US economy on recovery path. They would progress and are on firmer ground. The profits have improved but prices are in normal range
Metals : there has been good capacity creation in this sector and profitability is OK, so, here also worries should remain at bay.
FMCG : this sector has best of the corporate level practices, HUL and ITC are very strong companies which would grow only in positive direction in future and keep Nifty in balance.
Power : the likes of NTPC have no parallel , the price also is on the lower side. With distribution and bill collection problems under check, power sector should remain OK and growing. Profitability of this sector is ensured.
(I have talked of sectors with particular reference to Nifty because HDFC Life's equity funds have bulk from the Nifty universe. The rest are very meticulously researched and collected and give the opportunity of beating the indices year after year. )
The Price to Book ratio is at historically low point and would put-up resistance against price fall.
The big fall in 2008 had occurred when the PE for Nifty was high at 27-28. The case is quite different this time. If there is over-selling , then the bears will take care of Nifty from going further down . You should have resurgent mood rather than sombre mood at present. This is my message. You are aware that any thing may happen , designed or otherwise , so you have to arrive at your own judgement before you convert idea into action.
The food and commodity prices have bearing on industrial economy and not so much on the rest like Pharma, IT, FMCG and services. High commodity prices give commodity producers to improve margins. High interest rates affect in a similar way. Since the industrial have far lower representation than they used to, the situation should not be taken to be very alarming.
With best wishes ,
Krishnakumar Khandelwal
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