I continue to be a big and unabashed fan of the long and medium term potential of Indian economy to beat all the other nations hands down in the coming few decades , despite our political leadership and bureaucracy.
As we speak the foundations of the great Indian Bull run are being laid now in our economy and markets. Where in the world do we find so many bullish factors together- Demographic dividends(the fact that Indian population is and would be the youngest for many decades), huge local entrepreneurship talent , English language capabilities, very high savings and investment rates(34-38% of GDP), growing consumerism , huge middle class etc. These factors would ensure that we will continue to grow at an average growth rate of 8% for a few decades, which will translate into nominal growth rate(real growth rate + inflation) of 14-15%(assuming 6-7% of inflation). This in turn would ensure that the Indian economy would double up every 5-6 years (@12-14% Compounded Annual Growth rate(CA GR) for next 2 decades. This will make the Indian economy a $20 Trillion by 2030 (>10 times the current size and bigger than current US economy size@$15 Trillion). These numbers and trends are almost unanimously agreed now by various studies of the big banks as well as international agencies.
Though I am a long term investor who focuses on long term trends/ predictions of the economy/ market and the businesses, I would dare to venture into the medium term forecast now and predict that India economy and the markets are at the threshold of starting a big and long bull run. The Sensex could be touching 24000 by Q2/Q3 of 2013 calendar year (16 X FY14 forward PE). This is about 25% gains from the current levels. This means that if we chose the right businesses/ companies (fundamentally strong businesses with competent management at attractive prices), we could potentially make 35-40% of returns in 2013. This market forecast might get battered only if we have sudden upheavals or catastrophic events like US fiscal cliff not getting resolved and US getting into recession or severe Euro sovereign default or Indian Govt falling etc.
The current economic woes of low growth rate(5.5% growth) , high inflation etc are not going to last long with Indian Govt. desperately trying to re-start the economic engine by policy and legislative reforms and trying to cut the fiscal and current deficit. With this, the “best of class” businesses in India , especially in rate sensitive sectors who have been badly beaten down in last 2 years (like banking and finance , automobiles, capital goods, infra, etc) will do very well in terms of earnings growth. Certain businesses in domestic market centric sectors like retail , pharma and energy will do very well too. Most of my investing companies/ business , like the ones mentioned in my 2012 forecast article(published on 31st Dec 2011) are from these sectors(the best and bigger ones among the sectors). They have already given me 30% YTD returns which is not bad, considering the uncertain environment domestically and internationally.
The secret behind making money in next 2 decades in simple. Select the best few among the fundamentally sound and long term potential companies/ businesses (10-15 companies/ businesses) with durable competitive advantages, aligned to the India growth story, run by competent and trustworthy management and available at attractive prices. Keep on investing in them in every significant price dips so that you could create a market beating and low risk portfolio. Another key secret would be to do your own homework and not depend upon the market intermediaries/ brokers’ for their advises. Lastly, play among the large caps(> $2 Billion or Rs 10,000 crore of market cap/ turnover) as they have the potential to weather economic storms and sail through market tempests.
Happy investing .