Expectations and Thoughts on a New India – Post Elections Note

Date: 1st June 2019

Recent Events – Elections

  • Last week we had an election result day and the 2019 central election came to a dramatic end. We welcome the second term of BJP and the National Democratic Alliance at the center.
  • The 6 week long 7 phase election was an emotional, high decibel multimedia war among the parties and participants. I am so glad we fight this way. People argue, they criticize, they pull up history, they express themselves, and they get angry. They decide whom to vote for. Then they stand peacefully in a line to vote, and accept the outcome.
  • This is far better than a civil war or an agitation or a set of bandhs and protests. Thank you India. :-)

THE Economic Environment

  • Growth is slowing in the Indian economy to 7% and below. This is weak as we have a low per capita GDP. To absorb the population growth in jobs, we have to target 8% plus growth.
  • The slowdown is a culmination of multiple events – high interest rates relative to inflation; weakness in sectors like real estate, automobiles, consumption and low rural demand. BFSI sector has issues like a liquidity challenge affecting NBFCs, NPA issues in PSBs and the IL&FS crisis. Exports have slowed down as global demand is down due to weak growth and a tariff war between USA and China. The private sector is not investing.
  • Even though the above laundry list of issues is depressing, the economy also has a number of positives. Our IT and ITES sector continues to bloom. Sectors like pharma, automobiles, telecom and retail have achieved impressive scale. The large corporates have in general improved balance sheets and are low on debt. Private sector does have investment firepower in place if they see good opportunities. We are past several difficult structural reforms like GST, RERA, demonetization, shell company crackdown and Bank NPAs, and with this election result market uncertainties are much lower. We have rich human resources and need to tap this well.
  • Corporate India has to grip the large opportunities up for grabs – housing, infrastructure push from govt. including roads, railway, airlines and airports, gas distribution and water supply, mobile and telecom based opportunities, consumption by a large population, eCommerce, digital and Aadhar validation based business models.

A Wish List for Modi 2.0

As an investor, I have many hopes and expectations from this new government. Extending from governance to education to the corporate sector, this is my list:

  • How can justice be delivered faster? The numbers of pending cases in lower courts to SC are scary. The main issues are – slow resolution, and cases in lower court routinely reopened in higher courts. Our suggestion is to – have no vacancies for judges, courts open all year long, push for mediated solution rather than court battle, time bound cases (no tareek pe tareek) and low acceptance in higher courts. Digital solutions can speed access and enable common judgements for similar cases. The NCLT driven IBC code has also proven its usefulness. However this needs to be tightened based on the experience so far, to be faster and with higher success rates.
  • Do we have the right education systems today? The problems extend from low penetration and presence of schools, high dropout rates, poor learning and skill building outcomes, overlaps between state and central boards, many languages and high study load for students. Our suggestions are – more and better govt. schools, coordination between central and state boards on content and timetables, free and compulsory (penalty parents punishable) govt. education till 10th, digital tracking of schools, teachers and students, better curriculum of less rote and more experiential, discovery and project based learning, emphasis on sports with good facilities, and zero homework. Competition is always good, so all education should be freed from govt. license shackles. The best universities will naturally thrive.
  • Is the right way Garibi Hatao or Amiri Badhao? Both are important. On the former side, the excellent work on toilets, housing for all, LPG, ration card based subsidies, farmer schemes, cooperatives, good supply chain to agriculture needs to continue. Electricity for all, better quality electricity, lower leakages, pension for 60+ age, unemployment measurement and schemes (MGNREGA) needs to be bolstered. All subsidies and subsidized product distribution needs to go through Aadhar verification to plug leakages. On the latter side, corporates need to be encouraged as they generate employment, good salaries and taxable profits. Real Estate and Textiles need revival. Exports and a good startup environment is important.
  • Need for Infrastructure: This is obvious, and a crying need. While some progress has been made on Roads and Electricity, much more needs to be done here; and in Railways, Airways, Ports, Water supply, Healthcare and Education, Municipal reforms and Town planning, local transportation and Police reforms.
    1. Suggestions – funding is as important here as detailed planning. Pension and Insurance funds should be allowed and enabled to invest in Infra.
    2. Projects have to be reasonably profitable for private sector operators, with lower risks and permit challenges.
    3. Development of 1-2 new metros in every state. The current 6-7 metros are overcrowded and infra is stretched. The next 20-30 cities need to develop systematically to take pressure off these metros. The Smart Cities Mission needs to be accelerated.
  • Public Sector Enterprises: The Govt. should not be in any operational firm that has no national Interests. Firms like SAIL, NTPC, HPCL, BPCL, many parts of Indian Railways, BSNL, MTNL, Coal India, etc. should be freed from the chains of PSU restrictions, allowed to operate freely and generate reasonable returns. The PSUs and govt. ministries have assets worth lakhs of crores that are generating low single digit returns. GoI should monetize firms, assets and lands and sell to investors – foreign, Indian or even their own employees, through IPOs, auctions and management takeovers. And fund Infrastructure, Education and social needs.
  • The role of Regulators: The right way to encourage growth in a sector is to have a Regulatory authority that ensures a level playing field and meet national and business objectives to develop the sector. It has to include a think tank and sector experts. Regulators for every sector should be much more dynamic, open to discussion and forward looking, with minimum regulatory and legal overlaps. They must enable minimum ROI for new sector entrants. The success of SEBI, IRDAI, TRAI, etc. has to be extended to Hospitals, Education, Pharma, automobiles, chemicals, etc. to roll out required standards & compliance, and encourage growth and penetration.
  • Taxes, Interest Rates and more on Corporate Sector: The laundry list of urgent needs is
    1. Corporate taxes need to be lowered. This was a Modi 1.0 promise – lower taxes and fewer tax concessions.
    2. The current interest rates in India are very high in the global context, as well as given the low domestic inflation. Rates need to lowered – through RBI intervention and easing up of foreign borrowing.
    3. Simplification of GST to 2-3 levels. Inclusion of liquor, petro products and cigarettes
    4. SEZ model revival and encouragement of exports
    5. Labor reforms. Firms should be able to hire (and fire) more easily and with lower overheads.
    6. We need to officially and robustly measure & track Unemployment. This is a key economic measure.
    7. Auditors have an important role in prevention of financial crimes. Perhaps a regulator is needed for Statutory Auditors to keep up standards and prevent problems early.
  • Do we need to export more or import less? Both. Many high tech products like auto steels, specialty chemicals, commodities, oil, gold, machinery, chocolates and consumer products are imported for factories and consumers here. Local manufacturing needs to step up to fill these needs. Also exports is still not happening on a good scale. We are running a trade deficit. This has to be filled up by IT & ITES, pharma, automobiles, engineered products, steel, aluminum, petro products, gem & jewellery, tourism, airport /aviation and seaports /shipping.
  • Environmental protection: As the globe gets hotter, the oceans dirtier and forests thinner, it’s sad to see USA dropping environmental concerns and reneging on commitments. In the war on air, water and plastic pollution, India has a secret weapon – low cost of operations. It’s possible to recycle old ships (Alang), electronics /ewaste, newspaper and most dry waste, and generate a wage for workers and a profit for the business. However we need to protect our borders from waste dumping. And the Ministry of Environment, Forest and Climate Change needs to proactively reach out to industry, municipal corporations and volunteers to enable and scale these activities.
  • Thoughts on Ministerial Changes:
    1. In Singapore, the minister appointed for an Industry is often a very respected senior business executive from the sector, who transitions from a CEO role, to developing the sector for the nation. Knowledge of individuals gets institutionalized. This has allowed Singapore to progress very fast, it is now a Developed economy. India must adopt this model as in many ministries leadership requires a lot of industry knowledge.
    2. In India, we saw the Railways and Coal ministries work together innovatively due to a common Minister. Such strong coordination is needed to solve challenges such as Kashmir (Home and Defense), Transportation (Ports, Road, Rail, Air) and Energy (Electricity, Petroleum, Solar, Wind, Coal, Hydro,) etc.

Conclusion

  • Execution, administrative reform and good governance have been key observations in Modi 1.0. National pride, Industrial progress and social capital are coming together well.
  • We need to do even better in this new regime to take Indian GDP to 8-10% growth range and lift standards of 130 crore / 1.3 billion Indians.
  • Also see A Vision for the Indian Economy‘ 

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

Investment Notes – Euphoria

Three positive events have occurred. Demonetization is over; the Feb 2017 budget was good, and the 5 state elections threw up BJP as a likely winner in 4. At this point, we are overwhelmingly positive on the investment outlook.

Investment Notes

It was 18th Feb 2015. The Sensex had just closed at 29,320. It had been 9 months since the Modi led BJP won the parliamentary majority – they got 272 seats – to form a government. In the last one year, the Sensex had jumped from 20,536 to these levels, a gain of 43%.

An investor asked me a simple question: So what has changed on the ground and among the companies that has resulted in a 43% jump in Sensex? I just nodded, unable to express the reasons. I’d like to try to answer this today. The simple answer – NOTHING !! Most of the companies were 5-10% up on financials/ EPS in the last one year. Nothing special to report here.

So what gives? What explains the big jump? The answer is optimism and sentiment. Just like most things in life, people act on the basis of heart (emotions) and head (rationality). The Modi govt. won a resounding victory, after a bitter, negatively fought election. A lot of people now looked to the future with renewed hope and optimism, and felt we have a govt. that is cleaner, more decisive and which is thinking long term.

The positivity changed the outlook of investors. Retail bought Mutual Funds. Investors took fresh 2-3 year, long term positions. FIIs entered and took new 10+ year investments on the basis of longer term trends like consumption and housing shortages. Sensing all this, traders bet positively.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” ― Benjamin Graham

So while nothing changed on the ground, the 2 year forward outlook changed sharply. The stock market always tries to look a few years ahead. At a stock level, most large caps have 1-2 year financials baked into the prices. Mid-caps are divided into the well-known and the lesser known. The well-known firms too have 1-2 year financials baked into the prices. Since growth rates are higher here, valuations parameters like P/E and P/B can look expensive. The lesser known mid-caps and small caps can flounder at low valuations until they get discovered. Many opportunities are available here for investors to find high quality firms that can be great investments.

So what happened after Feb 2015? The 43% jump due to euphoria and positivity gave way to rationality. Whats really happening on the ground? Is business looking up? What big bang reforms are the govt. conducting?  The answers were not immediately obvious. The parliament became a logjam – the lower house had things easier but the upper house blocked new initiatives.  Massive industry specific issues such as coal and power can’t be wished away with a govt. owned magic wand. It takes time and resolve and good administration.

Post Demonetization Post Budget 

By Feb 2016, the Sensex had fallen to 23,154, a fall of 21%. Post budget, once again there was optimism. The govt. has given a positive budget. No major worries. Toward Nov 2016, we had demonetization. There was confusion, discomfort and a cash shortage. Recovery from this started by end Dec. The cash shortage now looked likely to be resolved in a few months with few residual issues. Recovery was sharp, aided by another good budget in Feb 2017.

The Budget 2017 was overall positive. Small sops for the people included lower tax at entry levels. There were benefits for real estate transactions and Industry status for affordable housing. There were no major negatives, and fears dissipated. GST is likely in 2017-18.

The direction from the govt. is very clear. Black money is to be legalized and cleansed, and black money sources are to be capped. Cash and real estate cannot be a store of ill-gotten wealth. Taxation and compliance has to go up. Big ticket reforms are to be made, opening up new sectors. Foreign and local investors must be encouraged. Abject poverty has to be eliminated. The average man is honest, hard-working and follows the rules. Lets make life easier for him. Plus big changes have to be made to make the country a better place. All subsidies must be targeted using Aadhar to avoid waste. We hope that tax rates – both direct and indirect, are peaking now, and as compliance improves, rates should ease.

The FIVE State Elections

The 5 state elections of Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa have just concluded. Its been a strong victory in the biggest state, UP, and Uttrarakhand, for BJP. Manipur and Goa may also go BJP way per latest reports. So even the tricky UP population is convinced. In a delayed fashion, BJP will also get more seats in the Rajya Sabha. While it is unclear when BJP will get majority, but certainly over time the statewise support for BJP will increase.

These three big positives combined makes things look good for a 3-6 month period.

We signal a new euphoria for the Indian market

jainmatrix Investments

We welcome – the Bull

India and USA markets:

Just like in India, there appears to be an election led upswing in the USA. The Trump administration too is looking to take bold steps. The focus is on domestic improvements. Jobs, some elements of domestic protectionism, better healthcare, etc. Optimism has shot up in USA. Rather than fearing the world, USA may move to strengthening its own country.

jainmatrix investments

A quick look at Sensex and Dow Jones over the last 2 years indicates a good correlation. See figure – thanks Google Finance. Barring some big local events like demonetization, the two markets are moving in sync. This is another factor that makes me positive about Indian market outlook – its difficult for Indian indices to outperform year after year unless at least some of the global markets are also moving in a similar way.

The potential Risks or negatives that I see now are – 1) Fed rate hike expected this week – will it affect Indian Indices? 2) INR strengthening against USD – is this even possible? 3) Higher inflation – we have early signs of increase 4) Bad monsoon in 2017.

There are always risks and negatives. But at this point, we are overwhelmingly positive on the investment outlook.

JAINMATRIX KNOWLEDGE BASE

See other useful reports:

  1. Avenue Supermarts IPO: The Mart of Choice 
  2. Bharat Electronics OFS
  3. Whats different about the Investment Service from JainMatrix? – A video
  4. Why are Indian stock markets attractive for Investments? – A video
  5. BSE IPO: Put this Exchange on Hold – Report plus Video
  6. CPSE ETF FFO – An Energizing Offer – Report plus Video
  7. Balmer Lawrie – An Update
  8. Why Stocks, and Investment Outlook – Dec 2016 – A Video
  9. Investment Outlook – Short Term Pain, Medium Term Gain
  10. The Natural Quotient: A Sustainability Metric for Business
  11. PNB Housing Finance IPO: A Transformed Lender
  12. GNA Axels IPO
  13. RBL Bank IPO 
  14. New Banks: Big Changes in Small Change 
  15. Equitas IPO – Leader in SF Banks
  16. Do you want to be a value investor?
  17. Mahanagar Gas IPO 
  18. A Repurpose for our PSUs
  19. How to Approach the Stock Market – A Lesson from Warren Buffet
  20. Announcement – SEBI approval as a Research Analyst

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in any company mentioned here. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any equity investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

JainMatrix Investments June 2014 updates

__________________________________________________________________

June 6th 2014

Dear Reader,

This is a very exciting period for Indian investors. Normally Time is Money, but the current time is like Gold.

After the election results, the new government has made many very good moves. The bold invitation to the neighbor country leaders was a wonderful way to start conversations. The decision to merge some related ministries to improve decision-making and unify leadership roles is impressive. Less government and more governance is a super goal.

The market has welcomed these moves with approval in the form of big buying and this week the Sensex crossed 25,000 decisively and Nifty the 7,500 mark.

At JainMatrix Investments we are happy to note that our stocks are riding these times very well. Lets recap our recent reports and articles.

  1. The Wonderla IPO recommended as a Buy did exceedingly well. At last count the firm was up 70% from the IPO pricing. The flip side of course was that only a few lucky people got shares on IPO allotment.
  2. Next we reported on Petronet LNG – A Recovery in Kochi. Surprisingly, it is already 11% up in the last month.
  3. In the article “How many mutual funds should I hold?” we encourage investors to buy Direct Equity with the help of an Investment Service like the one we have at JainMatrix Investments, so investors can reduce costs, maximize gains and gain control in the investment process.
  4. This website has been created to be a valuable resource for the investor. There are now over 90 reports and articles here which track the equity fundamentals, analyse events, comment on sector performance and educate the Investor. At JainMatrix, we want to make equity investments easier for each and every visitor of this website. To use this resource best, find the Company or Sector of your interest from the Search Boxes, or use the drop down second row Menus above for guidance.
  5. We presented the Large-Cap Portfolio Investment Note, mapping the economic and investing related events. This recommended portfolio has held up well for Subscribers, tracking closely the major indices.
  6. We updated our Track Record on 20th May, and reported that our universe of 46 stocks appreciated 41.2% annualized, and the top ten by an amazing 125.3%. Surely there is something we are doing right.
  7. The political clarity that came post elections threw up new opportunities, so we presented Subscribers a Post Elections opportunistic buy list. We are confident that these stocks will do well in the 1 year holding period.
  8. And finally today we presented Subscribers with an interesting stock idea from the Oil & Gas space. But we have committed to One Month of Silence, so readers will have to wait to hear more about this.

But if Time is Money for you, it will give us pleasure to add you to our group of Subscribers.

I hope you find these reports useful, rewarding and informative.

Regards,

Punit Jain
Bangalore
JainMatrix Investments

Do you find this site useful?

  • Visit the SUBSCRIBE page to find how you can get more. Click LINK
  • Register Now to get our Free reports and much more, on the top right of this page, or by filling this Signup Form CLICK.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

March 2014 updates

__________________________________________________________________

Dear reader,

This has been an eventful period for investors. The market has entered all time high territory. Election fever is on in the country. Here’s an update on the reports from JainMatrix Investments in this period.

  • We were intrigued by an interesting small Cap – and created VST Tillers Tractors – Agro Growth in early March. This share is up 20% already. See LINK
  • We recommended CPSE ETF to readers. The NFO was successful, and investors have already gained 12% even in this passive, conservative fund. See LINK.
  • We were glad to see some justice for a well-known personality. See LINK
  • There was an update of the JainMatrix Investments Mid Cap portfolio, with a helpful note – See LINK
  • We revisited Yes Bank to create another timely report, Yes Bank – A Rediscovery.
  • We updated our Track Record, to find our top ten of the tracked portfolio is up 83% on an annualized basis – See LINK
  • With so much recent success in our investments, is it time to slow down things and worry a bit? Not really. I believe that the stock market is a moody monster, alternating between periods of high rapid gain – such as now, and of deep depression, such as 2008. Right now may be a time to join it and enjoy the ride up.

I hope you find these reports useful, rewarding and informative.
If you haven’t already, do sign up on the website to receive free new article alerts by registering your email ID.
Only Paid Subscribers have access to the Portfolios and some of the more valuable reports.

Regards,
Punit Jain
Bangalore
JainMatrix Investments

Do you find this site useful?

  • Visit the SUBSCRIBE page to find how you can get more. Click LINK
  • Register Now to get our Free reports and much more, on the top right of this page, or by filling this Signup Form CLICK.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com