Transcript Wealth Creation --- Indian Equity Markets Nooresh Merani www.analyseindia.com www.nooreshtech.co.in February 28. 2011 Power of Equity Using the example used by all Mutual Funds to.

Wealth Creation --- Indian Equity Markets
Nooresh Merani
www.analyseindia.com www.nooreshtech.co.in
February 28. 2011
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Power of Equity
Using the example used by all Mutual Funds to sell you
equities !!
• How much can you make in 26 years by just
investing Rs.10,000 initially in any of financial
instruments ?
Take a wild guess ???
Let us look at the real example…
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If you have subscribed in 100 shares of ________
company with a face value of Rs. 100 in 1980…
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In 1981 company declared 1:1 bonus = you have 200 shares
In 1985 company declared 1:1 bonus = you have 400 shares
In 1986 company split the share to Rs. 10 = you have 4,000 shares
In 1987 company declared 1:1 bonus = you have 8,000 shares
In 1989 company declared 1:1 bonus = you have 16,000 shares
In 1992 company declared 1:1 bonus = you have 32,000 shares
In 1995 company declared 1:1 bonus = you have 64,000 shares
In 1997 company declared 1:2 bonus = you have 1,92,000 shares
In 1999 company split the share to Rs. 2 = you have 9,60,000 shares
In 2004 company declared 1:2 bonus = you have 28,80,000 shares
In 2005 company declared 1:1 bonus = you have 57,60,000 shares
In 2010 company declared 2:3 bonus = you have 86,40,000 shares
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Power of Compounding
Your present valuation is about
Rs. 354 Cr.+
&
The company is ‘WIPRO’
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Other Examples !!
CIPLA
Investment of Rs. 10,000 in 1979 will fetch Rs. 95 cr.+
INFOSYS
Investment of Rs. 10,000 in 1992 will fetch Rs. 1.5 cr.+
RANBAXY
Investment of Rs. 1000 in 1980 will fetch Rs. 1.9 cr.+
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What Happened in the last 5 years
1st April 2007 – 12455
30 March 2012 – 17404
To find CAGR:
Initial amount:
Ending amount:
Years of investment:
CAGR (%):
12455
17404
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6.92%
If you take your investment point to be 01st January 2007 the returns
become sub 4 %.
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SIP is not the best WAY !
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The rise is generally slow and steady. ( 2003 to 2008 )
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The fall is swift and markets stay low for lesser time. ( 2008 and 2009 )
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It’s the best way for AMCs as you commit funds for 5-10-15 years whether you
get returns or you dont.
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Example a 7 year SIP in one of the Sensex Funds by X company is giving a
negative CAGR.

There may be various methods devised by Asset Management companies right
from SIP, Value Averaging, Dividend Yield Fund, P-E fund etc but nothing can
beat long term returns by investing directly into equities.
The best time to invest is --- WHEN YOU HAVE MONEY !!

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Investing into Equities !! The simple Way.
FUNDAMENTAL ANALYSIS
Or
TECHNICAL ANALYSIS
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Fundamental Analysis
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Fundamental Analysis
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Things to Note
A stock would move only 10 times a year on events. But we have a ask/bid every second --- Reason --- Demand – Supply.
The annual report of Larsen & Toubro for instance is 269 pages, Reliance Inds is 200 +
and majority of the large cap companies have 100 or more subsidiaries.
Can you rely on a Brokerage Report !!
Can you assume everything written in the Balance Sheets is true !!! ( CA s and Auditors
are very smart ). Satyam and many more examples.
What is the max no of companies you can follow Fundamentally ? How many good
analysts you can trust ?
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Why to use Technical Analysis
One of the oldest device which is now more then 120 yrs old !
The oldest example is of Homma Munehisa in 18th century in rice trading in
Japan.This evolved into the japanese candlesticks.
Dow theory was derived from articles of Charles Dow in 1900-1902 in the Wall
Street Journal. He was also the creator of Dow Jones Industrial Average.
After the huge turnarounds in 2008 crash, recovery of 2009, Correction in
2011 and a subsequent recovery in start of 2012 one needs to realize the
importance of timing the markets.
Technical Analysis is a study of Demand and Supply which moves the
markets.
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Investing into Equities !! The simple Way.
Always stick to stocks with decent margin of safety, Potential
Growth and good managements.
Increase Equity Exposure as and when Technicals point to a
change to Positive Trend. Like the one we are in right now.
Focus on Cash preservation and book profits when there is a
Technical Trend change or Euphoria.
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Sensex the next Multibagger
………….. a technical view.
Analyse India
This is the follow up to our 13
year cycle model and long term
view presented first in Sept
2005 and next in August 2009.
Charts !
Plotting through
Line/Candles/Bars
DATE /Timeline
PRICE
Daily/Weekly/Mthly
Japanese Candlesticks
Negative
Positive
Flag Pattern
150
100 Rs
50 Rs
13 year cycle / Flag and Pole
Pattern.
Sensex set
for bull run
till 2018 !!
Super Bull
Run :
Dow Jones :
34 yrs
Sensex :13 yrs
Aug
2009
Consolidation
Dow Jones : 17yrs
Sensex : 13 yrs
April
2012
Dow Jones Pole and Flag- 17 years cycle
The red circles show
How the channel
lines were
maintained on such
long term charts
NOW LET US SEE THIS IN
COMPARISON WITH
SENSEX
AFTER 8k Sensex we saw a
breakout similar to Dow Jones
at 1100-1300 !!
Dow doubled in 3 yrs.
CHANNEL
TARGET
CHANNEL
TARGET
3 times
DONE !!
7k to 21k
roughly
SENSEX position in Phase 2 !!
SENSEX is here
in the BULL
RUN!
LOT LOT MORE
TO GO
COMPARISONS
DOW JONES !!
SENSEX
 Pole-: 1932 1966 ( 34
yrs)
 Channel : 1942-1966 (
24 yrs 10.8 times)
 Flag: 1966-1983 ( 17
yrs of no growth)
 First Phase: 19841987 ( 2 times in 3
yrs)
 New High: in 22 mths
 Top : in 17 years
• Pole-: 1979-1992 ( 13
yrs)
• Channel : 1988-1992 ( 4
yrs 10 times)
• Flag: 1992-2005( 13 yrs
of no growth)
• First Phase: 2005-2008(
3 times in 3 yrs)
• NEW HIGH : Same high
in 24 months
• TOP : ( Ideally by 2018
Minimum 27k-32k or 77k.)
Some Observations
 Sensex completed 1st leg of the 13 year cycle
in 3 years from 2005 -2008 by gaining almost
300% or 3 times the channel target.
 The bull run started from the lows in 2003 to
2008 and lasted almost 5 years or 58-60
months.
 The first phase in Dow Jones lasted for 5 years
or 60 odd months from 1982-1987.
Some More…
 Dow Jones hit a new high after 1987 in the next 22
months but the correction was only 61% of the
move.
 Sensex has seen a correction to almost 75% of the
upmove and has tested the breakout channel.
 This indicates Sensex may take a longer time hit a
new high.
 So we have a long way to go !! Next chart will
SHOW !!!!!! – ( As on August 2009 )
A long parallel channel
A terminal breakdown
below the trendline
before the big rally
Almost Double Bottom
close to trendline
A long parallel channel
A terminal breakdown
below the trendline
before the big rally
 Sensex now seems is into a correction similar to 1990 of
Dow Jones which retraced almost 50% of the rally.
 For Sensex the rally of 2009-2011 could not surpass
previous highs so it may not necessarily make a 50%
retracement but a little lesser then that.
 So ideally any retracements to 14500-16000 will remain
buy points for long term targets at 27k + in next 3 years
and 77k also by 2018.
 The 13 year cycle remains in place till 13000/14500
retracement levels are not broken on monthly closing
basis.
Although the 13 year cycle theory seems
unbelievable or hum bug.
Would like to post the chart of Sept 2005
when this theory was first put up by us at
8000 Sensex with a presentation named“Post 8000 Boom or Dooom “!
DO W JO NES ( 10, 273.59, 10,754.60, 10,142.24, 10, 422.05, +147.080)
DOW JONES
mar ch 1983
dec 1999
15000
k
R
1158
R
11658
10000
M
10 times
V
V
in 16 years flat !!!
5000
k
1940
1986
1950
1960
1970
1980
1990
2000
Familiar????? Above is Dow Jones and below is SENSEX
BSE Sensex 30 Co (7,818.90, 8,521.75, 7,818.90, 8,222.59, + 417.160)
If INDIA grows
70000
10 % p.a com pounded for nex t 1 3 years
w e should see SENSEX at 2 5k
i
60000
50000
i
@
40000
k
k
30000
20 % p.a com pounded for nex t 1 3 years
w e should see SENSEX at 7 7k
i
20000
i
i
i
k
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
10000
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Sensex at 77000 --- That’s INSANE !!
• From 20k average in 2008 say 77k in 2018 is a CAGR of just 14.4%
• 21k in 2010 to 77k in 2018 is a CAGR of 17.6%.
• A index move to 77k by 2018 would imply a CAGR of 25%.
• Even If I were to consider a return of 12% CAGR for Sensex it should touch 36-37k
by 2018  .
• THIS IS THE sense of Fear in investors which has come because of the tepid returns
over the last 5-6 years.
• The best time to believe the India story is when no one believes it !!!
( H ) OLD IS GOLD !!!
Why BUY ?
 Land at negligible cost and Depreciation in Assets
 Holdings in various group companies.
 Change in Generation/Management.
 Huge Margin of Safety and Value unlocking on Monetization of Assets over
the next few years.
How to FILTER ?
 Value of Holdings and Discount.
 Land and Other Assets.
 Profit and Cash flow.
 Debt and Dividend Yield.
 Possible Triggers – Value Unlocking, Sale of Assets, Restructuring.
The Companies
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Bengal and Assam Company
Bombay Burmah Trading Coporation Limited.
Forbes & Company
Aditya Birla Nuvo
Godrej Inds
Nesco
Bharat Bijlee
Bengal and Assam Company
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Current Market Cap --- 180 cr CMP – 209 . JK Group Holding Company.
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400-450 crores of quoted investments in JK group companies and other equities.
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Other investments at 300-400 crores at cost.
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Net off Debt – 800 + crores of holding.
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Major Subsidiary – Fenner India ( 87.5 % ) – Does a PAT of 40-50 crores on 300-350 crores of
Sales. Consolidated Profit after Tax for Bengal and Assam Company is 60+ crores. Fenner India
holds around 150-200 crores of JK group companies.
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The stock is available at 80-90% discount to Holdings and at a consolidated P-e of less then 3.
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The next trigger would be an increase in dividend this year. As of now yield is only 2%
Bombay Burmah Trading Corporation
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Current Market Cap --- 780 cr CMP – 562. WADIA Group Company.
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51 % stake in Britannia worth 3600 crores. 170 crores worth of Bombay Dyeing.
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Net of debt -- around 2600 crores.
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The company just showed around 130 crores of profit from selling of its two divisions.
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The company also has a TEA business with 2300 hectares, some pockets of land in Pune, Kanjur
Marg etc. It may also have other holdings in group companies.
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Available at a 70% + discount to its holding value. But the main trigger would be if further land
parcels, tea business or holdings are sold over a period of time.
FORBES & COMPANY
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Current Market Cap – 570 crores – CMP – 443 – Shapoorji Pallonji Group Company
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Eureka Forbes – 50-60% Market Share in Water Purifier Market . Aquaguard is a brand
synonymous of the sector.
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5-7 acres of land at Chandivali – Dispute settled.
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Volkart House in South Mumbai – 14 flats and possibly go into redevelopment.
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20-24% stake in Bombay Swadeshi Mills. Under Dispute. Land in Chennai.
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The company may have huge land parcels in it books as it is the oldest registered company in
the world.
With the management credibility ( Shapoorji Pallonji networth is 50k crore) we can expect the
rewards to come to shareholders. 90% of holding is with safe hands.
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Aditya Birla Nuvo
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Current Market Cap – 11400 cr CMP – 1014. Flagship company of Birla Group.
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Holdings in Idea and Hindalco worth 8500 crores.
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Other group business – Birla AMC and Life Insurance, Madura Garments, IT, Manufacturing
businesss.
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The net Enterprise Value is around 25k crores. ( If recent valuations of AMC given it will increase
quite a bit)
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IT and Telecom business can be on the block over the next few years. Equity Infusion in other
business
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A combination of growth, compounding and value unlocking in this defensive.
Godrej Inds
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Current Market Cap – 8600 crores – CMP – 270 ---- Flagship company of Godrej group.
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3600 crores of Godrej Consumer, 3400 crores worth of Godrej Properties. Net 7000 crores.
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Chemical Business doing 1000 cr sales, Godrej Agrovet 2000 cr sales and other side businesses in
Animal feed, godrej tyson etc.
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Company will have a share of 40% in the profits in development of Vikhroli property.
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There could be good value unlocking in the long run and stock remains a buy in sharp
corrections.
NESCO
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Current Market Cap – 930 cr CMP – 663 ---
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Zero Debt company and sitting on huge amounts of land and a monopoly in Exhibition business.
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Land worth 2500 + crores. 10 lakh square feet of IT building worth 1000 cr. Plus IT park 4 and 5
to come over the next 3 years with internal accruals.
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Possible expansion of Bombay Exhibition Centre. Rentals to accrue from fy 13. This could lead to
a PAT of 80-100 cr in fy13.
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Possible Triggers – FSI application pending for BEC, IT Park 4 planning and more.
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Available at a forward p-e of 10-11 and will keep compounding the earnings over the next 5
years. Possible re-rating of the stock on valuation of real estate.
Other Companies
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Cash for DISCOUNT
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Piramal Healthcare, Smartlink Networks, Numeric Power.
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Technical bets --- Ceat Limited, Skumars Nationwide, Dr Reddys.
THANK YOU
Nooresh Merani
CEO – Analyse India Market Solutions Pvt Ltd.
www.nooreshtech.co.in
www.analyseindia.com
E-mail --- [email protected]
Phone --- 09819225396