Some food for thought
"Better to be occasionally cheated than perpetually
suspicious."
—B. C. Forbes (Scottish Journalist, 1880-1954)
Word for the day
Expatiate (v)
To move or wander about intellectually, imaginatively, etc.,
without restraint.
First thought this morning
As a society we appear to be lacking in achieving closure to
issues, especially the contentious one.
It is perplexing how a society whose core is built of principles
like forgiveness (kshma), compassion (daya), penance (tapa), inclusivity &
universality (one in all and all in one, Brahman and Atman), duty to share and
work for common good (Yajna) etc., could be so acrimonious, unforgiving,
sophist, disrespectful, self centered, violent and still not be remorseful of
the degeneration!
It is a common social belief that once the soul leaves the body
and body is subsumed in the basic elements (Panchbhoota), the karma of such
person are subjected to divine jurisdiction. Mortal human beings are advised
not to judge karma of the departed soul. This belief and tradition is also
losing its relevance. We now remorselessly adjudicate on karma of dead people
and get lauded for this effort.
Reminds me of famous words of legendary Sahir Ludhianvi
"Jinhe naaz hai hind par woh kahan hain!" (1957). (Watch here)
Chart of the day
Be selective about stocks and fund managers
My favorite fund manager and dear friend, lamented last night
"I hadn’t envisaged such sustained phase of rich valuation alongside
weakness in earnings".
I think he hit the nail right on head. Politics, geo politics,
trade war, liquidity, and debt market crisis are all facades most investors and
fund managers are trying to hide behind. The real problem bothering Indian
equities is the one of the longest earnings drought.
For past 10years, post GFC corporate earnings have grown @5%
CAGR. The conditions worsened materially in past five years, when earnings grew
at anemic @ 3.7% CAGR.
The return ratio (RoE) also deteriorated consistently, until
late last year, when major buy backs by IT companies & PSU and deleveraging
led some improvement.
The earnings forecasts for FY20-22 appear highly optimistic. But
this has been the case for most of past 10years, so placing reliance on these
estimates entails avoidable risk.
In my view, aggregate earnings may not improve much even in
FY20. The investors therefore will have to be very selective about their
investments. Selection of fund manager will also be very important.
For records, since 29th February 2016, when Nifty made its last
bottom and moved materially higher, the stock price performance has been highly
differentiated.
As the following table shows, almost one fourth of NSE500
constituents have returned negative yield since February 2016 lows.
In large cap (market cap >10k cr) space the current market
cap of the losers and gainers is almost same. In midcap space however the
gaining market cap is 3.5x of losers' market cap. The list of top midcap
gainers indicates that many stocks may have graduated from small cap to midcap
in this period.
Another pertinent point to note is that how much more some of
the outperformers may actually correct!
