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MACRO
The Bigger Picture
09/01/10 3
We All
Take
About
“Growth”
“India
Shining”
But what
is this
Growth
09/01/10
Cartoon by Ashok Dongre 4
Economic Growth
In simple words, the increase in the goods & services produced in the
economy …
09/01/10 5
GDP
GDP stands for Gross Domestic Product:
• Value of all final goods & services produced in a country in a given period
• Eg. biscuits, buildings, cars, CDs, bus rides, your doctor’s & CA’s fees, etc.
• The output of each of these (final) is measured at its market value and all
such values are added together to get the GDP
A rising GDP means that more and more goods & services are being
produced (output increased) in the economy … this is good news
because
– More factors (people & capital) are being used
– Economic activities are increasing
– Higher production is because of higher demand!
09/01/10 7
Economic Growth
We all know very well what the key drivers of this growth for India are …
09/01/10 8
Economic Growth
You can get a very easy access to such key indicators in news, NJ Fundz Watch, RBI, Finance ministry, etc
For Monthly Data visit: http://finmin.nic.in/stats_data/monthly_economic_report/index.htm
09/01/10 9
Inflation Impact
High Inflation:
Businesses:
• Input costs increase loss of competitiveness, Demand for higher wages
• Uncertainty prices, consumption & income levels and hence sales
Individuals:
• Fall in real value of Savings and Returns (especially fixed)
• Wealth destruction. Lesser disposable income. Fall in living standards
Low Inflation:
• Increases chances of economy moving towards deflation, i.e., falling prices
• Consumers postpone purchases falling levels of output stagnation of
economic activities
09/01/10 10
Indicators
Inflation: The inflation levels, except the current temporary deviation, have
been very steady in India and at around the levels that RBI / govt. wants it to be
(around 5%) …
Index of Industrial Production: This is key figure indicating the of the actual
growth in the industrial output …
Gross Domestic Capital Formation: represents the gross value of the goods
which are added to the fixed domestic capital of the stock during an accounting
year. Expressed as % of GDP
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Indicators
Fiscal Deficit: Is the difference between the revenue receipts plus certain non-
debt capital receipts and the total expenditure, including loans (net of repayments).
A low Fiscal Deficit indicates
• Less total borrowing requirement of the govt.
• Govt. is prudent / wise in spending the money
• Govt. is finding resources to finance its developmental activities
Gross Domestic Savings: Refers to the sum of public savings and private savings
(physical & financial). Public savings is the difference between total revenue and
current expenditures of the consolidated public sector
The GDS are very strong for India at over 30%. This has seen a steep rise in the
recent years … also indicating rising disposal income with people
09/01/10 12
Growth Drivers
Consumerism Infrastructure
Demographics Retail credit, low interest rates, Development of roads, ports, Reforms
Half the population below 25 yrs changing aspirations telecom FDI, Tax reforms
Exports
Global
competitiveness Outsourcing
09/01/10 13
GDP Growth
09/01/10 14
How Can We Benefit
From the Growth
09/01/10 15
Being Part of Growth Meaning
09/01/10 16
Growth Participation Why
You as an Owner
Saving & investing money in business
You as a Lender
Saving & giving money to those who need it
This bringing together of those of needs funds & those who have funds is
the most important economic activity
This is where we need to have a market !!!
09/01/10 18
Financial System / Markets
09/01/10 19
Financial Markets Structure
• Result: the savers and investors are not constrained by their individual
abilities, to invest and save respectively
09/01/10 20
Primary Markets How
• Primary
– The issuers of securities issue (create and sell) new securities in the
primary market to raise funds for investment and/or to discharge some
obligation
– a financial market in which new issues of a security such as bond or
stocks are sold to initial buyers by the corporations or Government
• Secondary …
– Secondary markets deals with securities that previously issued. These
securities are resold in these markets.
09/01/10 21
Markets Players
The Market enables many entities, including us, to effectively carry out the
activities to fulfill the diverse objectives
• SEBI
• RBI
09/01/10 23
Security
• SEBI has been established with the primary objective of protecting the
interests of the investors in ‘securities’ which is defined in the
Securities Contracts (Regulations) Act, 1956 to include:
09/01/10 26
Equity Meaning
• Two meanings …
– Equality Each share represents equal rights
“whole divided into equal parts”
09/01/10 27
Equity Options Types
• Preference Share
Less common and have a priority over Common Shares for distribution
of profits (fixed dividends / profits). Dividends are cumulative in nature.
No voting rights.
Being a Equity Holder can make you the owner of good businesses like
Reliance, Tata, Infosys, Wipro, Bharti, ICICI
09/01/10 28
Equity Price
09/01/10 29
Equity
• Dividend Yield
= Dividend / Price
Price: current market price
Dividend = declared Dividend Per Share
• Earnings Yield
= Earnings / Price
09/01/10 34
Equities:
Growth Stocks:
09/01/10 35
Equities:
Value Stocks:
• Stocks that are available at prices lower than their fundamental worth.
• Good stocks with good earnings history available at lower prices.
• A stock may turn a value stock when the markets fall or when there is
a general downturn in the markets.
• The person investing in value stock hopes that the market will
ultimately discover the stocks and their prices would rise.
• The value stocks generally have lower PE multiple and lower price to
book value ratio.
09/01/10 36
Research in Equity:
• Types:
– Fundamental Analysis
• Top – Down Approach
• Bottom – Up Approach
– Technical Analysis
– Quantitative Analysis
09/01/10 37
Equity
• Market Risk
• Capital gains
• Sentiments in ST, Herd
On sales … converting
Mentality notional gains into real
09/01/10 38
Understanding the Relationship
Economic Growth – Profit Growth – Price
09/01/10 39
Benefiting from Growth
Consumption
The corporate profit growth is
directly to the economic growth
Sales
The corporate profitability growth
can be guessed from the ‘nominal
Profits
economic growth’ …
09/01/10 41
Equity Relationship
WHY?
09/01/10 42
Equity Relationship
09/01/10 43
Equity Relationship
09/01/10 44
Equity Relationship
09/01/10 45
Relationship
BSE Sensex
Sensex Earning
09/01/10 48
Equity Investing
09/01/10 49
Equity Investing Styles of MFs
• Lower Expenses
Passive Fund Management
• Rebalancing of portfolio for
(Index Funds)
index
• ‘Tracking error’
09/01/10 50