Thought for the day
”Three things cannot be long hidden: the sun, the moon, and the
truth.”
-
Buddha (563-483BC)
Word for the day
Euthenics
(n)
A science concerned with bettering the condition of human
beings through the improvement of their environment.
(Source:
Dictionary.com)
Teaser for the day
Did Sonia Gandhi invite Narendra Modi for Iftar party
hosted by her?
If not, does it bother you?
If yes, and Modi did not attend, does it bother you even
more?
This one may take some time
The return on investment in publically traded equity is broadly
a function of 3 factors (a) earnings growth; (b) changes in price earnings (PE)
ratio and (c) dividend. Amongst these earnings growth is primary driver for a
sustainable up move in equity prices. The higher PE ratio and dividend yield
usually follow the higher earnings trajectory.
The 50%+ gain in benchmark indices since September 2013 is
function of improvement in earnings profile of Indian companies and PE rating.
However given that the improvement in earnings profile is still marginal and is
not indicative of improved pricing power (better margins not because of cost
control) higher RoE (higher creditworthiness) and RoA (better capacity
unitlization), the PE re-rating could mainly be function of improvement in
sentiments due to macro improvement (especially CAD, fiscal balance, INR
stablization, and lower core inflation) and political changes, since September
2013.
The corporate fundamentals would need to show material
improvement over next 9-12 months to sustain this PE re-rating. In my view, we
may see corporate fundamentals improving over next 9-12months and market may
continue to trade at current multiples over next couple of years.
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