Are markets expensive?

Our in-house FY17 Sensex EPS estimate is ~ Rs. 1,595/- a YoY growth of 14.5%. This implies FY17 Sensex PE of 18.5xs.Assuming a 15-20% YoY growth rate, FY18 EPS is likely to be ~ Rs. 1,835-1,915/-, which if valued at current multiples would imply an Index Level of ~ Rs. 34,000-35,000 – an upside of 15-20% over next 9-12M at index level.

Please note that our portfolio services can potentially deliver sustainable absolute returns of +35% over a 5-year holding period, which is far superior to the returns expected from the broader markets in this period.
Various factors that we believe are working in favor of Indian markets to support 17-19-xs valuation multiples are as follows: –

  1. The BJP Government win in Uttar Pradesh state elections with a clear majority is being viewed as a strong positive for the markets. Total Rajya Sabha Tally will improve, which is critical for making any legislative changes.
  2. Strong macro data and stable December quarter earnings from India Inc. has also boosted sentiment.
  3. Pro-reform and positive budget with high focus on increasing infrastructure spend is expected to be good for the earnings growth in the following years.
  4. Strengthening rupee, despite rate hike in the US on the back of continued FII inflows.

Is it the right time to invest or should I wait for market correction?

It is the right time to invest in markets, if you are a believer in the India growth story. We believe that India is structurally on a multi-year growth path supported by strong domestic consumption demand. Further all the steps taken by the BJP Government has only reaffirmed investor confidence in this growth story. All the new reform initiatives (land bill, clamp down on black money, GST, etc.) taken by the government is only expected to aid domestic growth.
We believe that the overall trend is pointing northward but market volatility is unavoidable, so we suggest using each dip in the market to invest more.
Even a seasoned investor like Warren Buffet says that catching the tops and bottoms of the market is impossible but a broad trend can be ascertained with the help of some lead indicators.

As indicated earlier that we expect the Indian stock markets to maintain their upward growth trajectory in the coming years and hence any volatility hereon should be used to accumulate the identified stocks in the portfolio and hold for long term (at least 4-5 years) to meaningfully grow your wealth.

I have Rs.xxxlakh to invest, provide a plan for investing this sum? Should I invest in full or break it up in smaller amounts and invest gradually (SIP)?

Markets seldom move in one direction and historically it has been seen that there are bouts of panic moments even during a bull market. So, we suggest that invest a meaningful sum immediately (at least 60% of the total investable corpus) and set aside balance funds for investment during dips in the market to take full benefit of averaging.

In this regard our portfolio services is ideally suited for your requirement that provides this kind of flexibility of systematic investment over a long period of time.

Our product is very simple and we follow a clear investment philosophy of ‘5in5’.

Create a portfolio of sustainable and high-quality stocks that will generate approx. 5xs returns if held over a 5-year period.

The entire portfolio construction is based on detailed in-house research wherein each and every stock invested in or on our radar is deeply studied across all qualitative and quantitative parameters. The level of conviction and upside is suitably captured in our recommended stock weightages. Our endeavor is to build a portfolio which has the potential of delivering 35%+ CaGR over 5yrs with minimal downside risk at all points of time.