Author Archives: ZerotoBillion

If there has been one debate raging across twitter and among the so called experts is whether we’re in for a larger, sustainable bull market or are we readying ourselves for another 5-10% downtick, like it has happened in the past two years now.

People have drawn out charts going back 2000s when the bear market rally led to another cataclysmic drop in the Nasdaq and how we’re in for a similar drop this time. People in India have seen so many false tops at around 18.5-18.9k on Nifty that everyone and their aunt is scared as hell for a major reversal beginning Monday morning tomorrow. Everyone who’s known me knows I’m a perma bull and I’ve been extremely bullish on the India story for reasons I’ve made clear on more than a few times.

This debate to my mind is because of the recency bias. Humans have a tendency to believe that whatever has happened most recently is most likely to happen again. So a stock going up is bet upon to keep rising, a range bound market is most likely to play in that range and vice versa. We, however, miss the fact that markets move in a range for long periods only to breakout on the way up, delivering outsized returns in extremely short periods of time and then making us play the waiting game. sSo just because we have been in this 15-19k range for two years does not mean we will never break out and that the lifetime high is permanent. Always remember, lifetime high is like your current age, it has to go up everyday and is only a reflection of how far you’ve come, not how far you will go. It’s a rear view mirror, not a forward looking crystal ball.

History, to my mind, is the greatest teacher of markets. People in 2005 didn’t believe it was a raging bull market. People, especially the market experts tend to talk of 20003-07 as the time when everything went up, all the time and everyone was making money. No, if you go back and read articles from 2005-06, or watch interviews during that time, you will see that people weren’t believing even then, in the midst of the last mega run India has seen. The 2010s has been a lost decade for the indices but it has made our markets much more resilient, cleaner and less immune to the FII outflows.

The only person who has made money in this market is the guy who bought into businesses, bought steadily and sold rarely. There is a guy Shelby Davis who started in 1947 with $50K and turned that into $400 Million by the time he died in 1994! And, he was a retail investor!!! The best investors, the people who have made big money are the ones who just refused to believe the experts, and who never sold. I’m nowhere close to that kind of discipline but I have only made one sell decision in the last year and plan to cut it down to zero this year. It’s not easy but it works.

People are so disbelieving of the current rally and the stocks which are going up that ITC is still treated with disdain, TaMo is still a lumpy cyclical stock and BSE still a second rate also ran stock exchange. The views I have may not turn out to be correct but if even half of it is correct, I’m three years time we’ll make so much money that the entire capital base will change.

One thought on TaMo- the best performing stocks in the world currently are the luxury goods- the Ferraris and the LVMH of the world. I don’t understand how JLR isn’t a luxury carmaker when all the cars it makes oozes luxury of the highest order. The new Range Rover is a $250K per car and even if I’m a bit biased, I believe that it makes the sexiest cars among the big 4- BMW, Merc, Audi and JLR. Maserati and Ferraris are in a different league no doubt but over the past few months, there are a lot many Defenders and Ranges on road, even in a second tier town like Jaipur. If you discount the $10B valuation of Tata Motors EV, the entire JLR is valued at less than $12B with zero valuation for Indian PV and CV business. This must be a joke, right. Mind you, Indians have only recently fallen in love with the luxury cars. The annual sale of even the biggest, which is Merc is less than 20k cars. Imagine in 10 years, that will be more than ten times that number, easily. Why, you may ask. Because, even the JLR sales more than 100k vehicles a quarter globally. I don’t see any reason it can’t sell close to 25k in India in five years.

If one goes back and read the history of the USA, and there’s a fantastic book I’m currently reading about the Brown Brothers Harrison, the financial powerhouse in the US for over 225 years, you realise that even the US didn’t become the financial behemoth it is today overnight. I’m an Indian patriot and truly believe that in 25 years, India will become the second largest economy with over $10K per capita income, overall $15T plus economy and the amount of money up for grabs is just mind boggling. The Reliances and the TCS are just warming up. Google does $40B profit a quarter, Reliance does $9B a year! The opportunity is massive, massive being a tad too conservative.

My personal belief is that this time, market will break through the range and by the time it’s elections in 2024, we would be at least 15-20% higher on the index alone. But, as I say, opinion is cheap, unless backed by money. I’m at least 110% invested and that’s how I’ve always been.

PS: one thing which has caught my attention is the REITs stocks. They look interesting to me as of now. Who knows what lies ahead!

The trigger for this blog is many- a recent visit to a mall over the weekend made me realise just how much Indians are consuming and at what pace! Second, the recent macro data, be it GST numbers, auto sales, luxury goods sale reported by big brands, etc. all corroborate to the above and signifies the growing propensity of Indians to consume better and at a faster pace. A fantastic elucidation of this can be found in a recent interview Roshan Desai of Morgan Stanley has given to a bunch of media outlets.

Now we all know this, right. It’s my 95th blog and over the course of just over two years, I’ve only maintained one position that betting big on India has worked, is working and will work going forward. So this post is a recollection of some of the key learnings I’ve had in writing for two years:

1. People don’t invest for the long term. A lot many are here just trying to make a quick buck to feel good about themselves and will go back to their old ways once they lose some substantial portion of invested capital. Markets is an ocean which will give you as much as you ask for. So dream big and bite bigger.

2. Investing is simple but not easy. After having read almost every decent investing book, one thing I’ve learnt is that the best investors are the ones who have the courage of conviction and patience to hold in the face of a vast swath of unfavourable information.

3. The best time to buy is during a panic. Most fund managers will then come on TV and say how they predicted the crash or called the bottom but it’s utter nonsense. Except maybe a very tiny majority, most follow the herd- sell low and buy high. I’ve lost a lot of respect for the so called market masters after having observed them carefully to either try and buy Zomato in the name of quality or to pretend to be intellectualised investors in order to generate AUM for themselves.

4. Only your research will work. Most people around you will never appreciate the work put in to find a stock and ride it through thick and thin. I still hold some TaMo stocks bought at ₹64 but at that time through now, there must be a million reasons for me to have sold it. Conviction can’t be borrowed and patience can’t be inherited.

5. Ignore the economists, TV experts and plague at all cost. The macro calls, the concerns about a debt default, Russia Ukraine, Elections 2024, rate tightening/ loosening, and everything else is just plain vanilla bullshit. Ask yourself why you bought something and what’s the story you know and believe. Big money is made in the face of biggest uncertainty and all these experts will forever write articles and publish unfathomable research articles incorporating ultra complicated Greek alphabet salad in order to look smart. Well, it doesn’t work at all in real life, in markets. One of my famous lines is- the economists can at max buy a Maserati watch while lecturing someone who drives one!

6. Unless you put in a substantial portion of your net worth to a stock, you are not invested and this, any opinion you have is not relevant. Everyone can have an opinion but unless it’s backed by money, it’s worth zero!

7. Spending time in the market after buying into a position and holding it with all the patience you can muster will make a lot of money. TaMo went from 430 to 65 to now 555 over the course of my holding but it hasn’t been an easy ride. It’s taken many a turns where the rally was almost over and I had to literally push myself to keep invested. Same is the story for a lot of other stocks in the markets. Anyone who has made a real Multi-baggers will tell you how people only see the reward, not the journey!

8. Don’t try and chase every bull market. Your stocks will go up or down even when the market does totally opposite. There might be a time when you underperform massively due to a particular style being in favour. That’s part of life and should not make you dump your Colgate to buy a Paytm! Things do return to normalcy, it’s only a matter of when.

9. Don’t chase junk, quality trumps everything! I can’t repeat this more often. In every bull market, the absolute junk rises the highest. It’s okay for your neighbor or your colleague to bask in glory after making a quick three four times his money while your portfolio stay flat to negative for two reasons. One, anybody buying junk will only tout the percentage gain he made; in absolute terms it will be peanuts. Two, he will most certainly lose it all, if not in the same stock then in some other stock but lose he will, surely!

10. The best time to buy is when you have money!

So this has been a phenomenal run from the bottom of the March lows. Exactly two months ago, on March 28,2023, Nifty was reeling under severe selling pressure at around 16800 thereabouts with the consensus being a hit of about 15000 not so far away. The rebound took everyone with surprise and to be honest, even someone like me who remains extremely optimistic all the time felt the pain. I was actually worried if my portfolio was all set for another 10-15% downtick!

So at 18600+, what are we seeing and feeling about the markets. I believe that except the last 500 points rally, nobody really bought in big because everyone was waiting for the eventual downtick, the kind we have been experiencing for the past 18 months. Thus, the moment market corrected around 400 points last week, people sighed a heave of relief believing that 17000 was in sight. Not this time, though. I’m sure this is one of those nobody believes in kind of rallies which will first propel the indices to a new life highs and then take it onward to 22-25K Nifty before catching a break before the next election.

The way portfolios have behaved is most satisfying. I’m personally up 25% from March lows and this has been a group performance. When three stocks with over 45% weightage of my portfolio are down between 30-50% from their last year’s peak, except an ITC, No stock has yet hit its life high and except TaMo, no other stock is even close to its 52w highs, I don’t think there’s even a beginning of a sign of exuberance in the market. This is just the fruit of patience, when people like me who like to remain fully invested all the times recover lost grounds before an onward march.

My basic contention is, Nifty should hit 23K if not more in this upswing while portfolios should be at least 2-3x in two years, marking one of the mega home runs in recent times. Does this sound too much? Well, Sensex went 5x in four years between 2003-07!

Coming back to a few of my favourite names! BSE is doing a lot better under the new leadership with renewed vigour though I’d still believe it’s waiting for one or more triggers to blast- maybe an HPX revenue stream, an NSE IPO or a Gift city exchanges merger- I don’t know! All I know is that at this valuation, I can’t lose money in a stock trading at less than the cash on its books plus the building valuation!

TaMo is in top gears, brisling with energy. The kind of two quarters it had delivered has made heads turn, just like the cars it make these days! I can’t even wait to make enough money to buy a Defender. Any company which makes aspirational, luxurious products will do incredible in India and JLR is right there at the top.

On similar lines, just see the kind of luxury items available on TataCliq, Ajio or even NykaaFashion etc. Right from pens to watches to clothes to better cars, Indians are beginning to splurge like Chinese in the early 2000s! Even though I’m extremely disappointed with the lack of sales growth in United Spirits, I do believe that Indians will end up drinking more of our good old Johnny!

One industry I have recently developed a taste for is the hotels though I would rather be a guest than an investor. The kind of opulence available in India in tier two cities like Jaipur is unbelievable! And the prices they charge is nothing compared to the services offered. It’s however a capital intensive business and even though I did look at an Indian Hotels at 150-180, I don’t think they’re going to be more than a fad in the investing world.

What I really, truly like is the financialisation and domestic consumption theme. I hold Reliance for it is slowly building an Amazon plus Apple kind of an ecosystem, earning almost regular subscription type money from repeat customers- Ajio, Reliance digital, Jio, and what not! Myntra and NykaaFashion are having a run for their money with the kind of competition Ajio and Tata Cliq are giving.

I do like Sula vineyard as a potential product but maybe am too old fashioned to understand why people who’ll drink to flaunt their social status would want to buy a cheap 1500₹ wine bottle which tastes like shit! Wine is like golf. It’s for the extreme premium customers who will pay obscene amounts to get their hands on to a rare name. It’s not a mass product because the guy who buys one bottle to show off or announce his arrival as a nouveau riche will never buy another bottle!

PS: ITC hit 452₹ today and I am sure it’s at least a ₹600+ in one to two years from now!

Everyone who has met me knows how bullish I’ve been on Tata Motors for the past four five years. The logics have been dweleved into the namesake blogs multiple times. So what triggers this one!

An innocuous notification on the Stock-Exchange’s website today states that TaMo is going to consider declaring dividend in its next board meeting scheduled on the 12th of May. This sounds innocent and doesn’t suggest anything unless you take into account that the last time TaMo declared a dividend was in 2016! The share price has languished well below the price it hit in September 2015&2016 which is just above and below ₹600. Now the fact that it’s coming off a mega year loss making cycle and spree of debt reduction measures which has emboldened enough to dole out money as cash dividend means only one thing- the turnaround is over and the company is sure enough to mint money going forward.

Whenever a loss making entity has finally turned profit, stocks have rallied the most. Be it Amazon in 2003-04 or Airtel in early 2000s or even Tesla in 2010s, the moment a loss making company with extremely high fixed costs turn into black, the operating leverage kicks in and the profitability rises exponentially. It’s not a coincidence that company has made all the right noises about making JLR profitable with a much reduced break even volume requirements and selling highest ever cars in Indian markets.

The time for the stock to come out and deliver fabulous profits has arrived. The kind of sales it does, we’ll over $10B every quarter, it is not too far fetched to imagine it making around $500M to $1B a quarter going forward. If nothing happens magically on the flip-side, TaMo will deliver FCF of almost a couple of Billion Dollars every year at the least. It’s then trading at hardly 15x FCF yield which means the stock can easily double from here without being expensive.

Not everyday such moments come in a stock investors life when this kind of move is anticipated! I’m sure this is that point when TaMo will finally rally towards making a new life high, just like ITC at 200 quickly rallied to 425 and counting.

PS: Oracle has just made its 52W high and still trading at 17x trailing earnings with 6% yield! This can’t be true unless it at least a goes up 40-50% ! Fingers crossed

It’s been a while that I’ve discussed a new idea. Today, I wanted to revisit some of the mistakes I’ve made in the past six years which has made me who I’m and maybe through the discussion, I can justify to myself the reason I believe a stock I hold dear has a lot of room to rally.

The first stock my father bought for me was HUL. Actually he bought Asian paints and HUL back in February 2017 when the two were trading at around 800-850 each. Now you’ll get excited and tell me that I’d have made a ton of money because the duo has already tripled from those levels by now. Well, we’re discussing mistakes today ,right!

So from around 2017 to 2019 end, I had learnt what I thought was the Gospel of making money in this market. The Grahamic way of not paying more than 15x earnings and 1.5x Book value and through which you end up wealthy. So I kept adding all the Oil stocks, the metals and everything which went down 30% while the markets rallied from 8500 nifty to 12k nifty and HUL and Asian Paints became the market outperformers

In my little own world, I saw my HUL double in two years and Asian paints grow by 50-60% while the HPCL and Oil India going nowhere. So I took the cue from my master and converted all my lever and Asian paints into additional oil and metal stocks believing that I’ve hit the jackpot. Also, I was extremely happy averaging into Yes Bank with immense confidence in my uncanny abilities to turn lead into gold while the stock dwindled from 150 down to around 30₹. So in the first three years of my investing journey, I had read possibly a fifty investing books and learnt all the wrong lessons! I was sure the world was wrong and a guy with ten books in his cupboard held the key to the golden goose.

Fast forward three years, I got out of the oil and metal stocks, of course by making some money through the Covid dips but learnt the hard way and by a lot of losses the importance of quality. Hence, one of my earlier blogs was titled Don’t eat junk.

The other important lesson that I learnt from the HUL journey was that it was a good company coming out of a multi year sideways range after surviving through a big crash in 2008 while constantly increasing earnings, raising dividends and being a lot cheap on valuations. So a HUL which traded from 200-300 for seven years when it finally broke out of that range in 2010, it has gone up nine times to almost 2800 in the next 11 years. So as long as the company does well, earnings might run ahead of its times and which lead to a sideways decade when the entire world gives up on the stock and calls an end to it, valuations go from extremely frothy to extremely compressed, the stock eventually come back!

So here I am trying to talk to myself about the recent run in ITC. ITC didn’t go anywhere for almost 7 years when it traded in a 150₹ range from 180-330 types and made a lot of memes for itself. Two years back, it revisited its dividend policy which made it extremely attractive with almost 6% yield. At the bottom, it was yielding six percent plus and traded at around 15x earnings or less. At the current levels, it is at 3% yield at around 25x earnings. In three five years, if it makes 30000 crores and trades at even 40x earnings, the stock will be at around 1000₹ levels. So for all of you believing that the rally is over, it’s just the beginning.

Funnily, the rally is still being pooh poohed at. People are still in disbelief, both on the markets and in ITC in particular. As long as the skepticism prevails, both will rise unhindered.

Quality always survives and what survives, thrives!

I have always maintained that investing in markets is a mirror image of your living style. If you’re genuinely committed to your goals, can work towards them over long periods of time, have patience to go through rough patches with a conviction to trust yourself and your destiny, you’re bound to be successful. Of all the virtues listed above, patience is the rarest.

Just like someone who goes to gym four days a week, for five years will be fitter than most people in life, someone who holds his big conviction ideas through 50% falls and adds to them is bound to make a ton of money. This is simple but not easy. Looking at your portfolio going down 15% in a week is painful and can break a lot of will. Once you master this pain, as you can never be immune to its sufferings, you grow as an investor and as a person.

I’m also a firm believer in the benign nature of the markets. If you come here to make a lakh, you’ll have it. It f you’re here to make a thousand crores, you’ll have it too. As long as you choose your goals wisely and not give in to the temptations on the way of making a quick buck, success follows. This is as true in markets as in any walk of life.

So coming back to the markets. This has been a pretty solid month for broader markets. Portfolios have gone up 15-20% since March bottom and the feel good factor is slowly being felt. I however am sure it’s only a beginning when the pains of the past 18 months will give way to massive gains for those who have held through.

Just look at ITC! It’s now at lifetime highs of 414₹ and still trading at less than 30x trailing earnings! Compare that to a lever or a Nestle or anything to Asian paints which hover at not less than 60-70x after underperforming for three years. ITC was cheap at 200, it’s still cheap at 400 and it’s going to remain cheap at even 500! It’s a double in three years from now kind of story!

TaMo is poised to breakthrough on the upside as with the cash kicking in, it’ll make close to a $ 1 Billion profits every year, if not more. And like I’ve maintained, its EV play is the real jewel.

One sector I really feel needs your attention is the Broking and AMC one. You can have the biggest AMC stocks with cumulative AUM of almost 12.5 lakh crores, available at less than $9 Billion market cap. That is over 3200 crores of PAT with operating margins of over 75% and PAT margins of over 50% available at less than 25 times earnings. This represents 30% of Indian mutual fund industry. Similarly, the two big brokers together with 15% of Indian market share is available at less than a combined market cap of $3B! This can’t be true!

Just see the disparity. HDFC life does annual PAT of 1360 crores with dividend yield of less than 0.2% has a market capitalisation of 1.15 lakh crores. HDFC AMC with 2.8% yield does 1426 crores of PAT has a market capitalisation of 37k crores. ISEC did 1115 crores of PAT yielding over 5% has a market capitalisation of 14k crores!

Now coming to a stock which is kind of a recent entrant. Oracle Financial Software is yielding 7% trading at 16x trailing earnings sound too much like ITC at 200! All the best 🧐

Okay so this has been a pretty fantastic two weeks for the markets in general and portfolios in particular. We’ll see how things are shaping up and why I still am so optimistic!

First, the rally from 16800 to 17800 in just over seven trading sessions has provided a much needed relief to all investors who have seen their portfolios bleed red for the past one and a half year. The last uptrend which saw Nifty hit life highs in December just had nothing for the broader markets and my own portfolio was down 20% from the previous peak. It meant that the upswing was just index massaging and nobody really benefitted. The positive beta this time is almost +80-100% in portfolios which meant that while markets have moved 5%, portfolios are up almost 10-12%. The last week of March was pretty scary when I for a moment did fear if I’m going to go down an additional ten percent!

What I’m trying to say is that this rally is almost neglected. People are so scared and so convinced of an eventual downswing that everyone and their uncle aren’t participating. This is what I pointed out in a previous post that the skepticism index is sky high. Everyone is waiting for a correction they’re damn sure about. Most importantly, nobody wants to burn their hands buying another dip when it’s almost certain to go down, again! This is exactly how a new bull run takes birth- amidst pessimistic disbelief. Nobody is sure they can ever make money buying stocks and everyone wants to lock the best FD rates and add the glitter of gold to their holdings.

So my big call is that we’re due for a mega run, which is always my base case. Just look at monthly SIP numbers but for which we would have seen 10000 Nifty in the brutal FII sell off we have had.

Let’s talk some stocks. Tata Motors came out and reported a free cash flow of £900 M for the quarter gone by. That’s over 9100 crores liquid cash in one quarter! Fast forward next year and the stock is available at less than 4x forward Market cap to Cashflow! That doesn’t even account for the nearly $10B worth EV company sitting inside its Indian PV unit. It sold over 50K EV last FY, up over 2.5x YoY! So that market cap won’t be static but quickly move northwards beginning next January once the Ford plant gets operational. A base case scenario is a double in two years for this stock, without assuming too much.

Reliance just looks so stunning with the premiumisation of consumption kicks in. India is buying every luxury the world has to offer like there’s no tomorrow. Similar expansion happened in China when in the early 2000s when the world suddenly wanted to sell in China. Every luxury brand- watches, cars, liquor, bags sold like hotcakes. We’re seeing a similar beginning and mind you, we’re still a $3.5T economy! Over the next ten years, as we go up to $10T, just imagine how many Porches and Range Rovers and MacBooks and Gold Labels we’ll buy!

This,my friends, is an unbelievable buying opportunity in the India story and which is once in a lifetime! Don’t be scared of the little hiccups! If the Nifty itself will go up to 50000 in ten years, how does it matter if you buy at 16K or 17k!

Bet big on India, it’s a no brainier!

This has been a pretty hectic month for global markets. At the last count, three major banks in the US and one of globally significant ones- Credit Suisse have gone bankrupt or sold at pittance to its national rivals. Let’s deal with this one by one!

The SVB collapse is a stark reminder of the global financial crisis circa 2008 when banks and financial institutions collapsed while enabling maids and strippers to purchase mansions in Florida ( no am not making this up, Strippers did buy mansions. Go read the Big Short by Michael Lewis). It is eerily similar because, and am borrowing a quote from Shankar Sharma that this startup lending is subprime by its very nature. On the other hand, Credit Suisse going under came as a surprise but not shock to anybody following its share price in the past one or two years. At the last close, before it was sold at 75 cents a share, it’s market cap was just around equal to that of Canara Bank while it was bought at half the current market cap of Yes Bank! So much for global dominance and sound banking principles.

Currently, UBS, its savior has a market capitalisation less than that of ICICI Bank! The bigger thing is not market capitalisation but resilience of the Indian Banking industry in the face of global carnage. It is a matter of great pride and joy that our economy and banks are in absolute fine shape while the erstwhile global giants are collapsing like house of cards. It is also a testimony of our greater national economic resilience that while all major countries are staring at a recession, India is booming. Lamborghini is sold out for the next one year, Mercedes and Jaguars have have a waiting period beyond a year, Hotels have seen bumper occupancy at almost three times the usual prices and almost everything from iPhones to luxury watches are selling like hotcakes in India. So much for a falling GDP growth!

Look around folks, India is experiencing a monumental leap which is almost tectonic in magnitude . Over the next ten years, we’ll grow from $3 Trillion to almost $8-10Trillion and the way we see ourselves will change. This will be reflected in absolute world-class infrastructure, excellent hospitality industry and an India which is prosperous and aware of its role as the global rule setter.

Just see the change we have gone through. We now complain of a patch in a newly constructed highway being flooded whereas twenty years ago the road was no more than a single lane patchwork. I recently drove from Jaipur to Jodhpur, end to end in less than 5 hours including traffic( 350KM) whereas it used to take no less than 8 hours just a few years back. The roads and airports are now at par with the best in the world and any gora trying to tell you that India is an emerging economy must be smoking hash! We have the best payment and settlement systems in the world and the world is trying desperately to copy the UPI phenomenon. If it takes more than 5 minutes to open a broker’s account, I’ll be perplexed whereas the Germans still line up and wait for two weeks filling copious paperwork. The world is actually backward when it comes to digitisation and financial services. The Japanese are still figuring out mobile wallets while we’re going to international UPI.

One more thing, our hotels, even in tier two cities offer far more fine experience than one can imagine in even places like Dubai while Europeans still can’t figure out losing luggage in conveyor belts. This is our hallmark- hospitality. The world is also experiencing a new Indian traveler- richer and demanding. I don’t want to eat bland boring stupid pancakes and cupcakes because I want my laal maans and if you can’t provide it, you don’t get my money. The world will and is taking notice and the power of the Indian passport is rising. If you want me to visit your slowing economies because your people desperately want to sell high-end bags and watches which your people can’t afford anymore, be respectful of my identity. If you go around allowing Khalistanis to disrespect my flag, you lose my money Sunak! I’ve personally made a thumb rule that I’ll never travel to a country which doesn’t allow e-visa to Indians. As an Indian, a citizen of this extraordinary country facing its true tryst with destiny, I can be absolutely insistent on being on the Big Boys table.

So coming back to markets. This Credit Suisse, now Debit Suisse was pretty fast in not accepting Adani bonds as collateral. In one month, Adani has prepaid over $3-5 Billion of bonds while in Credit Suisse’s $17 Billion bonds are now worthless and it is bankrupt. Wake up Europeans, smell the coffee! India produces the best in the world btw!

Most importantly, I believe we’re somewhere in early 2009. This is when Lehman and AIG and the likes were dead or bailed out and the markets enjoyed a decade long bull run. We’ve gone through enough time correction where people have written off equity. This, as history tells us, is the time to be bullish left and right. I personally am always 110% invested so I’ve a vested interest in being so!

If you have read me this far, invest on India. Be bullish on this beautiful Country of ours which will be one of the most prosperous places on this planet in the next one generation. The naysayers will earn brownie points but you can earn a Billion.

So the monkey is off! The Silicon Valley bank collapsed in the US and the first major corporation is finally bankrupt post the rate tightening cycle which began at an unprecedented pace in the US and the world last year. Everyone was actually worried as to why no major poster child has yet collapsed and what better than the bank lending to startups in the Silicon Valley. It proves that the era of easy money is over and the hardest hit are the guys who had a free run beginning 2008, the guys running startups without revenue or profits or both.

There will be reverberations in India, ofcourse and our markets have been following the trend on the way down. I’m not sure as to when it will end but this is actually the beginning of the end for now the panic has led to chaos. You can blame me for being too optimistic but that’s how I view the world. So let me make some points in my defence.

The hardest hit by increasing interest rates are the guys who borrowed their way to growth. In India’s case, our listed corporate balance sheets are pretty clean given what happened post IL&FS crisis. Our Banks NPA are already one of the lowest in recent memory and their capital position extremely strong. Banks are also raising CASA deposits fast by offering juicy FD rates to their customers and even the stock market channels are now advising their viewers to park money in the bank. And this is my strongest point. The pessimism mood has given way to irrelevance.

It has been around 1.5years that the market hit its peak in October 2021. After that, even though the indices are down just around 8-10%, portfolios are down well over 20% and people have seen such negative down days that the hope of making a quick buck has died long time back. The Covid traders have gone back to their day jobs and equity markets are being viewed as a dangerous place once again. I know of a novice trader who had it so good that he almost made a million rupees through options trading and felt like king of the jungle. He, ofcourse, gave it all back in a couple of trades and has now gone back to massaging people’s back( he’s a physio).

The office conversation which was about how IEX has made a lot of money in 2021 went to how the market has fallen a lot in 2022 has now given way to “I don’t even know what’s happening in markets” in 2023. And that is the height of skepticism. People now refuse to believe that the market can go up and thus have stopped paying any attention to it. They either have taken their money out at a loss or have certainly vowed to not put in any more.

I personally have seen my portfolio go up 5% and fall ten so many times that even I at times feel if I made a mistake not selling out something when the going was good. So it happens with everyone and now I believe that the tide is turning.

Markets always climb the wall of pessimism and skepticism and eventually they will this time as well. How can a company who owes no debt fail? How on earth does an ITC fail when it has cash reserves of 50000 crores paying higher interest income to itself when the rates are going up!

Remember! It is essential to differentiate between the stock prices and the businesses which you own. This is the test when men will stand out from the boys and I’m sure, we’ll see the sharpest recoveries pretty soon. When everyone has given up on the market, when everyone sells on a rally, when everyone is dead sure this is a dead cat bounce, therein lies the seed of a new Bull Market.

Remember April 2020! Everyone and their uncle knew the market would fall and it is certainly going down to 6000 Nifty. Well, after that bottom of 7500, it was almost a one side run to 18000!

Stay invested, stay bullish.

India is on the cusp of a momentous feat. As the nation celebrated the 75th year of its independence, it also recently edged past its former colonial master to become the 5th largest economy in terms of nominal GDP. It took the country 50 years of independence to become a trillion dollar economy, while the next two trillions have come in 7 years each. It is also likely to become the third largest economy by the end of this decade, as per the recent IMF projections.
The objective of this article is to trace this journey of Indian economic growth through the rise in its stock markets and see if there exists any telltale signs of what is in store for India @ 100.

Journey of the Indian Stock Market
Even though India is a part of the emerging market basket, it has well developed and sophisticated financial markets, best depicted by the presence of the oldest stock exchange in Asia, the Bombay Stock Exchange (BSE), established in 1875. The bellwether index, the BSE Sensex has gone up almost 400 times since inception, at a CAGR of over 15%p.a.


The market capitalization of all companies listed on the BSE have gone up significantly from just over Rs. 6lakh crore in 2002 to over 28.3 lakh crores in September 2022, a growth rate of over 20% compounded annually. The BSE Sensex over the similar period has grown at a CAGR of just over 15% from around 3300 in 2002 to almost 60000 in 2022.

The fact that market capitalization of all companies has grown at a significant rate than the annual returns of the Sensex is in part dealt by Jay Ritter (2012) which says and I quote “… that investors realize only on the shares that they hold, not on shares that may later be issued by the same companies to other investors. … Part of an economy’s growth, as we have already seen, can be attributed to savings invested in new companies, and to the issuance of new securities by existing companies. But the gains on this capital investment do not necessarily accrue to today’s shareholders.”
This basically means that as more companies which are yet to be listed find their way to the bourses, the total market capitalization of the country rises, a fact which is not necessarily captures in the returns on the Sensex. There are two further explanations to this. One, not all companies which get listed on the exchange get included in the Sensex 30, as any such inclusion is based on the size of the float and turnover criterion and two, even if a newly listed company does get included, this itself may happen with a lag and thus, the return it has generated in the meantime is not captured.

A big chunk of companies which hit the bourses post the bear market which ended in 2003-04 have gone on to become mega corporations such as TCS & Maruti & DMart while the large PSUs which have only recently been listed include the likes of Coal India & LIC. All such corporations have contributed to the significant outperformance in the rise of market capitalization vis-à-vis the Senex. It is also reflected in a popular market hack/myth that companies underperform the index upon inclusion as most of the prices have run up ahead of their eventual inclusion.
Relationship between Economic Growth & Market Returns
There is a rich literature which has analyzed the role of economic growth in stock market returns. Ritter (2005) has found a negative correlation for the compounded real return on equities and the compounded growth rate of real per capita GDP for 16 countries over 1900-2002 period. Krugman (1994) & Young (1995) have argued that much of real economic growth in emerging markets comes from high savings rate and the more efficient utilization of labour, neither of which necessarily translates into higher profits accruing to the shareholders of existing firms. Dimson et al (2010) too found a negative correlation between real growth in GDP per capita and real equity returns. They also opine that the stock markets anticipate future growth and run up ahead of the curve and thus, high growth countries does not necessarily are the best performing stocks.


In case of India, for the period 2002-2021, we observe a very strong positive correlation of 0.94 between the growths in total market capitalization of BSE listed companies and GDP in absolute terms. On the other hand, a small negative correlation exists in each of growth in market capitalization v/s the returns of Sensex (-0.201) as well as growth in GDP v/s the returns of Sensex (-0.2183). This is in line with the literature which also observed that economic growth in a country is not necessarily translated to higher stock market returns and vice versa.

It can be argued that the Sensex 30 companies contribute just over 40% of the total market capitalization, and thus may not be a true proxy to capture the real returns of the markets. Keeping this in mind, data for BSE 500 index was utilized to observe if the above thesis stands ground. A similar level of negative correlation (-0.26 for BSE 500 v/s growth in GDP while -0.21 for growth in market capitalization to BSE 500) was observed.
An interesting observation, however, was in store while working the same set of data in absolute terms. A highly positive correlation of 0.94/0.96 was observed between the total market capitalization v/s the Sensex 30 & absolute GDP at market price v/s the Sensex. Similar correlation figures of 0.961 was observed for the Sensex absolute value v/s the per capita GDP in dollar terms for the period 1980-2021 and correlation figure of 0.952 for total market capitalization and the per capita GDP for the period 2002-2021.
The above points to a scenario where over the long term, a rising GDP results in a rising Sensex as well as higher total market capitalization even though a growth in GDP may not necessarily mean or indicate a positive return on the index in that particular year. The most obvious examples of this are years 2008 & 2020. In the former, the stock markets nosedived along with its global peers while the Indian GDP managed to hold fort against a wave of global meltdown. On the other hand, in 2020, the Indian GDP recorded its first negative economic growth in over 40 years while the stock markets managed to climb all walls of worry and registered a strong positive year.



Journey of the Domestic Investor-
Even though India has a large tradition of stock market investing, majority of the household savings have habitually been parked in gold and real estate. In the era of socialist policies, it was an ultra-socialist Minister, George Fernandes who inadvertently led to the birth of equity cult in India. As Industry Minister in the then Janta Party government, he forced the MNCs to dilute their stake in their Indian subsidiaries and thanks to the then prevailing policies, global majors such as HUL were forced to list their stocks at controlled prices on the domestic stock exchange. Alongside came Dhirubhai Ambani with the listing of whose Reliance Industries in 1977 and through its subsequent rights issues, then begun the first phase of equity cult in India.
Indians, however, have been slow to take the plunge. The total number of Demat accounts, a proxy of actual investors participating in the markets only numbered around 4 crores until 2019-20. Then Covid struck and Indians who found themselves stuck at home suddenly thronged to the markets in hordes. Thanks to the online onboarding by digital stock brokers, the total number of Demat accounts have jumped significantly to over10 crores in September 2022.
One reason which may be theorized is the rise in discretionary income in the hands of Indian populace. A proxy for this is the per capita GDP of the country, which has grown admirably from a lowly $82 in 1960 to over $2270 in 2021. According to the IMF, it has crossed $2500 in 2022. As the income in hands of people increases, they have more money left to either consume better goods or to invest. According to the World Bank, India’s household savings to the GDP stands at 29.3% in 2021. This translates to roughly $900 Billion of savings. A major chunk of this savings is parked in non-financial assets such as real estate and gold, etc. A trend, however, is slowly emerging towards greater financialisation of this savings. A proxy for small investor money flowing into the market is monthly SIP book which stands at record 12693 crores in August 2022.

Road to India@100
India has seen massive growth in its economy and the stock markets over the previous 75 years. The next 25 years, however, are likely to be even better for the nation and investors betting on it. In absolute terms, India is likely to add over a Trillion Dollars in its economy in even lesser number of years as it did the previous years, simply by the law of compounding. This will translate into real wealth for the nation as even at current 29% of household savings rate, the absolute value of such savings is likely to grow into trillions of dollars per annum and that means more resources for everything- infrastructure, welfare and wealth creation.
As the trend of financialisation of savings picks up, the amount of money flowing to the markets will be massive and that is likely to feed the stock markets in years to come. As we have observed, the rise in stock market capitalization moves in tandem with the GDP, Indian stock market capitalization is also likely to scale unfathomable peaks. Even though growth in economy is not necessarily a predictor of stock market returns, in absolute terms, over a long term, stock indices have been known to rise up alongside the economy.
Since the mood is cheerily festive, this is the year of dreaming big and making bold predictions about the future. So here is my two cents. The law of compounding is the eighth wonder of the world, said Einstein (though nobody can be sure about it). Indian GDP growth rate, the new normal of which is assumed to be somewhere between 4-8%, depending on how optimistic one is. The GDP is projected to reach anywhere between $8.8 Trillion to over $23 Trillion, as the chart below depicts. The per capita GDP may also reach anywhere between $6300 to over $16000 in the same time frame.



The most eye catching prediction is what lies ahead for the stock market. Indian stocks have delivered over 15% CAGR since 1980 and as Jeremy Seigel in his famous book, Stocks for the Long Run has depicted, stocks are known to deliver returns above the risk free returns of the treasury over long periods of time. This excess return is what is known as Equity Risk Premium. In India, G-Secs yields have moved between 5-12% for the period March 1998-September 2022. Assuming 3-4% risk premium, let’s see what the Sensex can look like in years to come:

Bet Big on India- it works!
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