Monthly Communiqué
Portfolio Management
April 2010
Extended till
20th April 2010
Invest India
Strategy
Objective:
The Strategy aims to generate
long term capital appreciation
by creating a focused
portfolio of high growth
stocks having the potential to
grow more than the nominal
GDP for next 5-7 years across
market capitalization and
which are available at
reasonable market prices.
Features:
• Multi - Cap Strategy
investing in high growth
stocks
• Investment Approach:
BUY & HOLD strategy
• Investment Horizon: Long
Term
• Low to medium churn
resulting in enhanced
post-tax returns
• Basically for Investors
keen to generate wealth
by participating in India’s
growth story over a period
of time.
RBI's decision in the month of March, to raise repo and reverse repo month ahead of its
policy meet is clearly an indication of its confidence in the recovery of economic growth.
This move seems to be in line with its stated objective of reigning in inflation. There is ample
liquidity in the system, what needs to be seen now is the credit off take and systemic
liquidity to assess the medium term impact on lending and borrowing rates. If inflation is a
supply side issue then this measure would not be effective and the RBI move may not be
able to tame it. This measure would only be effective if inflation is a demand led one and
given the growth momentum in the economy it clearly seems that inflation is taking shape
from a supply side issue to a demand led one. Further, the 10-yr- G-Secs have fallen
marginally indicating that the bond markets could absorb this hike. In our view, PLRs may
not be raised immediately but there could be around 50bps increase in the coming months.
We may not see any increase in policy rates in the April credit policy as liquidity is ample and
portfolio investments continue to remain very strong.
The commodities sector does not show much promise going forward. The 10-year bull
market in industrial commodities has seen prices rise multi-fold. While demand has often
been discussed, mostly in the context of an urbanizing emerging world, supply has been
less of a concern for investors. In our opinion, this will change and significant speculative
flows could reverse. The near-term negative outlook is based on concerns of :
a)
Prevailing inventory levels and a potential restart of shelved capacity leading to
further oversupply.
b)
Medium-term demand prospects, the secular drivers are already reflected in share
prices and are likely to subside, while supply will continue to grow at an elevated pace.
It seems quite evident that financial speculators and investors are exerting increasing
influence on industrial commodity prices from the fact that as much as USD $4 tn. has
entered the commodities market in the past 10 years, far outstripping growth in physical
trade. Financial participants in this space now range from retail investors in ETFs, through
hedge funds and short-term futures traders, to institutional asset allocators, pension funds
and endowments. Further, with commodities now established as an asset class, investment
banks are also taking increasing interest, adding people, capital and services rapidly,
suggesting the presence of a bubble.
Commodity related equities appear over-owned and at unsustainable valuations. Materials
stocks are valued way high above their long term valuations, reflecting the apparent
widespread belief that they are on an infallible, secular trend. However, since this is no
longer the case, we are underweight on metals and think it would be appropriate to book
profits and adopt a nimble footed approach as the sector reverts to its traditional cyclical
characteristics very quickly.
We expect strong fourth quarter results, with positive growth across all sectors (barring
telecom) and sensex earnings growth ranging between 25-35%, one of the strongest in
several quarters. We expect the momentum of 4QFY10 will sustain in FY11 and beyond
and believe along with growth, the quality of earnings growth would also improve. Further,
in our opinion Sensex RoE would bottom out in FY10 and cross the long period average of
18% by FY12.
Inside...
?
Value Strategy
?
Strategy
Bulls Eye
?
Next Trillion Dollar
Opportunity Strategy
?
Strategies
Focused
• Series I-Re rating
• Series II-Deep Discount
• Series III-Target Return
?
Strategy
Optima
Pls. contact your RM for more details
#
Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows in the strategy. The Above returns are calculated on
NAV basis and are based on the closing market prices as on 31st March 2010. Past performance may or may not be sustained in future. Returns above 1
year are annualized. Please refer to the disclosure document for further information.
Portfolio Management Services
Regn No. PMS INP 000000670
www.motilaloswal.com