Rs. 200 crore inheritance
In 2017, a person called Zee Business to enquire about the value of a few share certificates purchased by his grandfather around 1993.
To everyone’s surprise, the company was MRF (Madras Rubber Factory – a tyre manufacturer incorporated in 1960) & his grandfather held 20,000 shares purchased for Rs. 2 lacs in 1993.
In 2017, the shares were valued at around Rs.130 cr. (the price of one MRF share was Rs. 65,000). At current market price of Rs. 99,200, the shares must be valued around Rs. 200 cr. – excluding dividends. MRF is the first Indian share to cross Rs. 1 lac mark in futures.
The per annum return on the investment stands at 36% (excluding dividends).
The returns may sound very astonishing but key takeaways from this:
Power of patience: In today’s time when most investors check their portfolio’s return multiple times a day, it’s indeed a tough task to hold a company’s share or a mutual fund for 30 years. For 10 long years, from 1999 to 2009, MRF was trading around 1500 i.e. 0 returns. Most of the MRF investors must have exited the share during this phase – only to regret today when it crossed 1 lac recently.
No gain without pain: In the short run, the market could fluctuate but in the long run, the market works on fundamentals and good companies tend to reward their shareholders. On multiple occasions, MRF also corrected by more than 50% yet it has delivered close to 35% per annum return since IPO (1993).
Power of compounding is one of the most powerful yet underestimated force in this world. 35% compounded annually for 30 years is not 1050% (35% X 30 years) but 901,918%. Very few understand this.
Quote of the month
Owning stocks has continued to be twice as rewarding as owning bonds. Acting on this bit of information will be far more lucrative in the long run than acting on the opinion of 200 commentators & advisory services that are predicting the coming depression.
-Peter Lynch
From the global leaders:
“India is the world’s biggest opportunity in startup investing”: Magnus Grimeland, founder, Antler
“Inflation not at play in Asia; scale of Warburg Pincus’ business in India will keep growing”: Chip Kaye, CEO, Warburg Pincus
“India’s economy is surging thanks to these three revolutions”: Fareed Zakaria, Washington Post
India Consistently Resilient in Global Economy, Growth Significantly Above Pre-Pandemic Level: PHD Chamber
Indian macro dataflow remained strong:
Manufacturing PMI: Manufacturing PMI at 4 month high in April on robust demand for new orders and remained in expansion zone (>50 points) for the 22nd straight month;
Services PMI: The Indian services PMI jumped to 62, reaching a 13 year high in April 2023. It remained in expansion zone (>50 points) for the 21st straight month;
GST Collection: Collections of Rs. 1.87 lac crores in April was the highest collection ever;
Credit growth: Scheduled commercial banks (SCBs) reported a robust credit growth of 15.4% in FY23 compared to 9.7% in FY22. With this, India witnessed the sharpest rise in borrowings in the last eleven years;
Inflation: WPI inflation eases to 29 month low of 1.34% in March;
Forex: India’s foreign exchange reserves stood at $588.8 billion as of April 28.
Equities:
The Nifty Index gained 4.1% in April;
Mid-cap and small-cap indices outperformed large-cap indices and were up 6.0% and 7.5%, respectively;
Sector-wise, all sectors ended positive, except IT;
Globally, India was the best performing market in April, followed by Russia (+4%), UK (+3%) and Japan (+3%);
FIIs continued to BUY aggressively in April’23, with net buying of INR 9,792 cr.;
Mutual Funds SIPs touched Rs. 14,000 cr. for the first time reflecting the strong belief of Indian investors in equities.
Fixed income:
The MPC kept the repo rate on April 6, 2023 unchanged to 6.50% in a unanimous decision surprising the market which were expecting a further 25bp hike;
The 10Y G-Sec crashed from high of 7.46 to 7.046 as of May 10, 2023;
The current curve remains very flat with everything in corporate bonds beyond 1 year up to 15 years is available @7-7.65% range.
System liquidity remained in surplus with average monthly liquidity rising to Rs.1,53,205 crores surplus vs a deficit of Rs. 1,271 crores in the month of March.
Outlook:
While geopolitical issues still persist (Russia-Ukraine conflict, US-China trade war, Taiwan Political status etc.) the global supply chains have seen tremendous improvement in the recent months. During March’23, commodity prices have been slightly volatile (at lower levels) and most of the base metal prices have seen some moderation in recent months. Brent currently stands at $72/barrel and has fallen by 25% over the past 6 months (down 15% over past one month). Lower commodity prices should give some room for inflation control and may give respite to concerns on global inflationary trends.
While things are evolving on the global front, for Indian economy on a relative term there are more positives than negatives. On the domestic front, the key indicators continue to remain encouraging. Strong CV sales growth, stable GST and income tax collections, robust commentary from the manufacturing sectors, steady pickup in the credit growth to pre covid levels, stable exports growth and strong consumer spending are the key positive indicators.
Companies have started deploying the excess profit, as evidenced by the increase in ordering activity – a precursor to increase in private Capex.
Overall, despite the near-term recessionary concerns, over the medium to long term, Indian equity market looks to be on a strong footing. The current ongoing geo-political events may pose a risk to equities in the near-term, however, we continue to be bullish on India’s long term growth story.
