00:00 The sectors on which we think over longer period of time we can make money are essentially
00:14 sectors which are following characteristics.
00:18 One it is the companies which make money and not the sector.
00:23 In sector one company can give great return, other company can still destroy your capital.
00:29 So we are looking at companies rather than sectors.
00:33 The first thing is that this company should make more return on capital than its cost
00:38 of capital.
00:39 In simple terms it should pay you more by way of dividend than asking you more by way
00:44 of capital.
00:46 Because unless and until company is earning more than its cost of capital how will you
00:49 as an investor make money.
00:52 The second thing about this company is growth.
00:55 The company should have reasonable safeguards to ensure that its growth will be there for
01:00 years to come.
01:02 If it does not have any competitive advantage then growth can't be taken for granted.
01:07 So we want to invest in companies which are generating more return than their cost of
01:12 capital and where we have reasonable clarity that this thing will sustain.
01:19 Those are the characteristics which gives us to invest into these companies.
01:27 So effectively if you see in the recent time auto sales number, consumer staple, consumer
01:33 durable goods sales number, they all have come little bit subdued.
01:38 We are not talking about negative growth but we are talking about lower growth than what
01:43 was expected by the market.
01:46 Now despite this markets are holding up.
01:49 That means market have priced certain things which gives them the comfort that notwithstanding
01:55 the current little slow patch things will look better in the future.
02:00 I think market is discounting couple of things.
02:03 One there will be stable government post election.
02:06 Second that government will continue the path of fiscal prudence, no deficit spending.
02:12 And we will have series of rate cuts which will rationalize up on our real interest rates.
02:20 The market is also factoring in improvement in banking liquidity so that credit flow can
02:25 reach to sectors like small and medium enterprises, real estate.
02:31 Market is also looking at better transmission through mechanisms like NBFCs and PCA based
02:37 PSU banks.
02:39 And more importantly market is also looking at reduction in trade deficit with China which
02:44 has put pressure on our small and medium enterprises.
02:47 So market today is driven by bit of hope that all these things will be followed on over
02:54 next 6-12 months which will help earnings recover.
02:57 The biggest risk which market is facing is the earnings revival.
03:02 For last 5 years earnings growth has been muted and it is muted because we have been
03:10 cleaning up banking NPAs.
03:11 We have introduced better tax compliance through GST.
03:16 Now all these things should result into better earnings growth in the days to come.
03:22 So there will be factors like oil which are beyond our control.
03:26 But definitely there are factors which support or which are within our control which can
03:31 improve earnings.
03:32 If earnings improve, generally markets tend to remain upwards.
03:40 Market are not necessarily good predictor of election.
03:45 In 2004 as well as 2009 market was not right about predicting election result.
03:51 2014 it was lucky.
03:54 Broadly any market always wants a stable government which is committed to economic reforms.
04:00 And it tries to arrive at that decision based on opinion polls, based on surveys, based
04:06 on satta bachar and so on and so forth.
04:09 The current mood in the market is that there will be a stable government post election.
04:14 They will continue the work of economic reforms.
04:18 If we get that kind of government I think markets will be reasonable.
04:23 If we get a shock where we have a very coalition government, a khichdi sarkar, where the economic
04:30 reforms are not given priority, then markets could see a correction.
04:35 So if we get a coalition government where economic policies are not priority, then small
04:45 cap sectors will be at risk.
04:48 Some of the high beta sectors like capital, goods, infrastructure, construction will be
04:53 at the risk.
04:55 On the other hand defensive sectors like IT, FMCG, pharma will fall probably little less.
05:03 However on the other hand if we get a stable government which is committed to economic
05:07 reforms and which carry forward the economic reforms work, then reverse will happen.
05:14 IT, pharma, FMCG kind of defensive sectors will not move up, whereas high beta sectors
05:22 like small cap, capital, goods, infrastructure, real estate, construction will move further
05:28 up.
05:29 But my recommendation to investors is don't play for something which is not in our control.
05:35 Whether we will get stable government or not, it is not in our control.
05:40 We should focus on buying good companies which are run by good managers for a longer period
05:45 of time.
05:47 For last so many years we have seen elections go and pass, but the market has continued
05:53 to reward those investors who have done long term investment.
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