Gallop ahead with India Opportunity Portfolio November 2018
Why India -1.0 -2.8 -2.3 -1.3 -1.0 -1.2 -0.3 2.3 1.2 0.7 -0.6 Improving Fiscal Deficit (% of GDP) -4.3 Fiscal deficit FY18E FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY09 -2.8 -4.8 FY07 FY09 Source : India Strategy report May 2017 Lower CAD over the Years (% of GDP) Current account balance FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY08 -1.7 FY07 FY06 FY05 FY04 FY03 FY02 FY01 FY00 -0.6 -1.1 -1.3 FY08 FY06 • 8.1 India Russia 0.7 1.1 2.1 2.5 2.8 3.3 3.6 5.7 robust job creation and growing financial penetration. Malayasia driven by a combination of up trending consumption, The country continues to urbanise at a strong pace • presence by investing overseas. internationally and expanding their international Indian companies are gaining a stronger foothold • in the world. the country, to make it one of the strongest economies initiatives to strengthen the economic credentials of The Government of India has taken significant Thailand South FY05 2.5 FY04 FY03 FY02 FY01 FY00 4.9 5.9 4.8 6.5 6.0 3.3 Africa 4.3 India is one of best performing EM currency in 2017 Currency appreciation via-a-vis USD in 2017 China Indonesia Korea South Brazil 1 6.0 5.7 5.2 5.5 4.5 4.1 3.8 3.53.2 3.9 4.0
India stands out among Real GDP Growth CY18E 7 8 CY18E 3.4 2.6 3.9 2.7 2.8 2.3 CY17 5 CY16 CY15 CY14 CY13 0 1 2 4 4 5 6 4 7 6.8 CY14 CY15 CY16 CY17 India Afghanistan and Pakistan Middle East, North Africa, 7.7 7.2 7.9 4 7.2 6.5 CY17 CY16 CY15 CY14 CY13 0 1 2 6 8 • CY15 4 4 5 6 7 8 CY18E CY17 CY16 CY14 1 (% y/y) Real GDP Growth CY13 Economies Emerging and Developing Major Advanced Economies Source : IMF, World Economic outlook (April 2017) India stands out on the Emerging Markets pack on the back of strong fundamentals • Emerging Markets continue to remain attractive on Real GDP growth differentials 2 0 4.8 2 4.5 4.1 4.2 4.7 5.1 CY18E CY13 0 1 4 1.3 4 5 6 7 8 2 2 1.7 2.1 2 2
India Long Term Growth Trend 3.56 FY 95 FY 97 FY 99 FY 01 FY 03 FY 05 FY 07 FY 09 FY 11 FY 13 FY 15 3.87 FY 91 4.07 5.56 6.49 7.72 India Annual Real GDP Growth (%) 10 Year Growth • 10 Year average GDP growth has gone from 3.56 to 7.72 • We are now set to enter the next decade of a lift in growth Source: Central Statistics Office (CSO) and Motilal Oswal internal research; Data as on April 2017 3 FY 15 FY 93 FY 89 • Every 10 years, from FY1957 to FY2016,we see an upward shift in India's CAGR FY 59 12 10 8 6 4 2 0 -2 -4 -6 FY 57 FY 61 FY 87 FY 63 FY 65 FY 67 FY 69 FY 71 FY 73 FY 75 FY 77 FY 79 FY 81 FY 83 FY 85 FY 17
Why India – Markets may deliver double digit Earnings Growth 349 315 247 251 281 236 184 169 131 92 78 73 17% 25% 15% 18.9% CAGR 369 405 FY07 FY18E FY19E FY20E FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 FY06 FY05 FY04 FY03 FY02 FY01 703 601 480 418 395 413 FY17-20E: 4.5% CAGR In the long run, the markets always follow the earning pattern. For Nifty, FY17-20E the EPS growth stands at 17% CAGR, which shows the potential upside July-13 4.5 12 - month forward Nifty P/E (x) 10 Year Avg: 16.9x 18.2 11.1 23.7 July-17 July-16 July-15 July-14 July-12 3.0 July-11 July-10 July-09 July-08 July-07 9 13 17 21 25 for the markets growth for 3 year period. This compliments the current market valuations (P/E & P/B) which are at par with their historical averages. 3.8 2.3 1.7 FY08-17: 21% CAGR FY01-08: 4 expressed or implied in such statements. Past performance may or may not be sustained in future. assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those The statements made herein may include statements of future expectations and other forward-looking statements that are based on our current views and Source: Motilal Oswal Research India Strategy February 2018 12 - month forward Nifty P/B (x) 10 Year Avg: 2.6x 2.7 4.1 1.5 July-17 July-16 July-15 July-14 July-13 July-12 July-11 July-10 July-09 July-08 July-07 6%
Markets return as much as growth in earnings Mar-03 361 83% 5591 Mar-04 2% 1354 25% 27957 Mar-15 15% 272 -12% 3049 13% Mar 16 1329 19% 22386 Mar-14 9% 236 -4% 3469 Mar-02 5% 1180 8% 18836 Mar-13 33% 25341 216 CAGR YoY EPS Sensex YoY Sensex may not be sustained in future and should not be used as a basis for comparison with other investments; Mar-95 is taken as base year The information provided herein is for illustrative purpose only and should not be construed as an investment advice.; Past performance may or quantity expressing by how much the members of a group differ from the mean value for the group. CAGR - is an investing specific term for the geometric progression ratio that provides a constant rate of return over the time period; Std Dev - a 21-years CAGR of Sensex at 10% is exactly the same as 21-years Sensex EPS CAGR! Source: Motilal Oswal Securities, MOAMC Internal Analysis | Data as on 31st March 2016 10% 10% 21% -9% 540 74% 11280 Mar-06 14% 32% StdDev 24% 446 16% 6493 Mar-05 -2% 1330 -23% -28% Sensex 250 9709 Mar-09 6% 266 0% 3361 Mar-97 16% 833 20% 15644 Mar-08 38% 3% 820 3367 Mar-96 33% 720 16% 13072 Mar-07 181 3261 Mar-95 YoY EPS Sensex YoY -38% -2% 3604 19445 Mar-01 9% 1120 -10% 17404 Mar-12 1% 280 34% 5001 Mar-00 23% 1024 11% Mar-11 Mar-98 -4% 278 -4% 3740 Mar-99 2% 834 81% 17528 Mar-10 9% 291 16% 3893 5
Food For Thought Over long periods of time equities do deliver in line with corporate earnings; but it’s a known fact that the volatility in share prices is way higher than volatility of earnings themselves. This volatility in share prices results in emotional response of greed in rising markets and fear in falling markets. Mostly these responses are way more exaggerated on upside as well as downside. When evaluated in hindsight after the data plays out; one usually rues that responses were disproportionate to changes in corporate earnings. 6
Why Midcap Portfolio 1,492 33% (3) 68% To Mini Mid Mini Market return: 10% 2010-15: Median return CAGR 100 200 Total stocks (24) Mega Mid From (3) -32% (102) 4% (1,465) 11% (32) 11% (89) (88) Mega Mega Mega 100 200 1,908 Total stocks Mega Mid From (3) -32% -19% (1,841) 0% (26) -13% (88) 9% (64) 38% (71) 9% Source: Mid to Mega - 20th Wealth Creation Study by Raamdeo Agrawal (17) 19% (28) -4% (90) 21% (58) 57% (59) 21% (1,039) 55% (1) 158% To Mini Mid Mini Market return: 5% 2000-05: Median return CAGR Note: Figures In brackets indicate number of companies Mini, Mid, Mega crossovers - 2000-05, 2005-10, 2010-15 Mid and Small cap… balancing the odds… -3% 24% Mid (25) 61% (66) 27% (9) 46% (2) 76% To Mini Mini Market return: 22% 2005-10: Median return CAGR 100 200 1,098 Total stocks Mega Mid From (13) -40% (93) 7
Why Midcap Portfolio 19 -20% 84 1% 2,479 200 1 -16% -32% 25 9% 88 39% 67 100 0 2 711 8% 0% 2% 2,943 3,978 0 735 1% 100 200 2 400 -3 2 2 2 397 3,278 3 71 Source: Focused Investing – 21st Wealth Creation Study by Raamdeo Agrawal During 2011-16, 26 companies Exhibit 16 2011-16: Market Cap Crossovers: No. of companies and average returns Sensex. 31% over 2011-16 v/s 5% for delivered average return CAGR of The Mid-to-Mega portfolio crossed over from Mid to Mega. the Sensex. Mini return CAGR of 39%, v/s 5% for category, generating an average crossed over from Mini to Mid During 2011-16, 67 companies Mid and Small cap… balancing the odds… ❖ ❖ From (in 2011) Mid 31% Mini 26 0 Avg Return Total Demerger, etc Delisted, Avg Return Avg Return Mega Mid Avg Return Mega TO (in 2016) TOTAL Demerger New 8
Why Motilal Oswal PMS? We do not over diversify. We practise long term Buy and Hold investing style. The businesses we invest, must have growth potential with economic moat. in market”. We do not believe in “timing the market”, rather we believe in “spending time We invest in companies with operating leverage than financial leverage. Presence across the length and breadth of India. 31 October 2018. st Trusted by over 40,490 HNI investors and with over Rs. 14,439 Crs of AUM as on One of the pioneers of PMS business with over 14 years of PMS track record. honored and trusted name in the investing world. Motilal Oswal AMC is chaired by Mr. Raamdeo Agrawal, one of the most Motilal Oswal Group possess legacy in equities for over 3 decade. Basic Traits of our Investing Style 9
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