Some food for thought
"I am not aware that any community has a right to force
another to be civilized."
—John Stuart Mill (English Philosopher, 1806-1873)
Word for the day
Stellate (adj)
Like the form of a conventionalized figure of a star;
star-shaped.
First thought this morning
Whatever I could make of this entire controversy is as follows:
(a) I completely
believe the assurance of the Election Commission that EVM machines used in the
election process are temper proof. I have carefully studied the opinions of
various cyber experts and people closely attached with the entire election
process. Based on this I can safely vouch for the independence, effectiveness
and veracity of the entire election process.
(b) The commotion of
opposition parties sounds like the frustration of sore losers. The worst part
is that the results are still not out and these parties have started raising
questions on the election process itself.
(c) I strongly
believe that by raising doubts over the genuineness of the election process,
the opposition parties are not only creating an excuse to justify their
failure. They are also not just spoiling the image of our robust election
process. They are in fact disparaging our well established and widely respected
democratic traditions and weakening the trust of people in the Constitution,
constitutional institutions, judiciary, and security forces which provided
protection to the election the process. They are doing it without an iota of
evidence and purely to further their vested interests. This is indubitably an
act of sedition that must not go unpunished.
The new regime will do a great disservice to the nation, if it
decides to ignore it for the fear of being accused of carrying out political
vendetta.
Chart of the day
Let's quickly go back to business as usual
Yesterday I received the following table through a WhatsApp
forward.
It highlights that 75% to 80% of the equity return in past 6
years is consequent of PE ratio expansion and only 20% to 25% is due to
earnings growth. In this period Earnings have in fact grown at measly 3.7%
CAGR.
Once the market participants are through with their affair with
the politics and elections, they would need to sit, put their heads together
and contemplate the following:
(1) How much is the
scope for further PE expansion of Indian equities?
(2) How much earnings
will have to grow in next 3years to normalize the rapid PE expansion of past
6years?
(3) Is there enough
visibility of earnings growth for next couple of years at least?
(4) Though the
premium of midcap to the benchmark indices has moderated considerably in past
one year or so, but does absolute valuations are attractive enough to provide
decent returns over next 3-4years?
(5) Would it be
reasonable to assume that due to higher domestic inflows into equities, we
might not see any dramatic price correction, nonetheless a prolonged time
correction cannot be ruled out.
Answer to these inquisitions would guide how much return one
should be expecting from Indian equities in next couple of years.
Given the turmoil in corporate debt market and moderate gilt
yields, on risk weighted basis the overweight equities strategy will still make
more than sense than a balanced asset allocation in my view. However, the
return expectations may need material moderation, in my view.
I also find the following noteworthy from a recent research
report published by Nomura Securities.
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