In recent times , Indian market and economy seems to have hit the cross roads with concerns of parliament and policy logjam, banking system stress , credit / investment cycle not taking off, rural or agrarian crisis, uncertain monsoon, slowing exports etc. The manic depressive market which was euphoric a year back with the new government & economy seems to have lost patience and hope with the same government and economy and is painting a grim picture. In these cloudy and pessimistic situations, an intelligent investor needs to take a step back and take a longer term view and perspective of the economic and corporate earnings situation and ask a few long term and relevant questions. Is the Indian economy’s long term structural story intact? Are the problems short term in nature which could be overcome? Is the market over-reacting?
Yes, the Indian growth story is very much intact. Indian economy is sitting at the cusp of super growth cycle for next 30 years, exactly at the point where US economy was sitting after the end of World war II in 1945 and where Chinese were sitting in 1980s when they launched their economic reforms. This Super growth cycle would be fueled by multiple factors like demographic advantage( with youth forming a predominant proportion of the population), entrepreneurial or start up culture hitting the youth, growing and aspiring middle class, availability of skilled and English educated manpower and independent judiciary and democratic institutions
Warren Buffet once said that he owes his remarkable success to a luck factor as he was born at the right place(USA) at the right time. The super growth cycle of US economy after World War II for the next 50 years was the biggest growth story of 20th century and made US the dominating super economic power, contributing 25% of the world GDP. Warren and lot of other legendary investors like George Soros, Benjamin Graham, Philip Fisher, John Templeton were born at the right time in US and rode the US economy super growth cycle to create their wealth in billions of dollars. Similarly China economy entered the super growth cycle in 1980s and grew in double digit growth rate for next 30 years to become the 2nd largest world economy. Today, it’s 3 times bigger than Indian economy, while it was a similar size economy in 1980.
We, Indians are staring at the same kind of opportunity to create huge wealth through investing by riding this super growth cycle which Indian economy will witness for the next 30 years. I had published a blog in June 2011 about “India being the biggest growth story of the 21st century”. As per the leading global banks and financial institutions of the world, Indian economy will surpass US economy in 2042 and Chinese economy by 2050 to emerge as the world’s biggest economy.
If you wisely ride this stupendous growth opportunity for the next 30 years by investment in the right stocks/businesses with a long term (at least 5 years), you could create huge wealth for yourself and your coming generations. However, if you casually and unwisely invest in wrong business/stocks by taking undue risks and by being greedy and impatient (short term perspective), you are doomed to miss this once in a lifetime opportunity. Remember, Warren didn’t make his billions in 10 years. He made it through patience and discipline in >50 years of investing. Often, Time in the market is more important than timing the market.
The key is to identify the sectors and businesses/ companies who are the best proxies of this future Indian economy growth for decades. Remember that this is a long term story and hence we have to pick the best businesses which have the best chances to grow & survive with Indian economy for atleast 10-20 years. Don’t pick up more than 10-15 solid businesses with excellent management, available at good prices and stick with them for long. Following criteria could be used to pick these best businesses using core principles of value investing.
- Proxy to the Indian economy growth story or strong co-relation with Indian economy growth
- Excellent long term growth potential and durable competitive advantage or moat
- Honest and competent management – transparent and shareholder friendly
- Strong financial track record -stable & high profitability/ROE with strong balance sheet/low debt
- Available at discounted or fair prices with good “margin of safety”
The businesses where I am investing today after recent corrections are primarily from my 2015 and 2014 model portfolio (published on the site). They are mainly in Private Banks space (Yes Bank, Axis Bank), Housing Finance companies ( LIC Housing Finance, Dewan Housing), Auto sector(Tata Motors and Apollo Tyres) ,Pharma (Aurobindo, Torrent and Lupin). Besides these businesses, am also investing in global defensives like IT sector(Tech Mahindra and HCL Tech). From Infra and power related sector, you can only invest indirectly through ancillaries/ suppliers like REC and Coal India so that direct risks are minimized.
Remember, Successful equity investment is not a rocket science. It doesn’t require a high IQ or professional expertise. All its requires is the right temperament(long term investing), sound and common sense driven framework to select the right businesses & finally discipline/patience to stick with your decisions, regardless of the short term variations of the market.