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Wealth Creation through
Equities
Aashish P Somaiyaa
Managing Director & CEO
Understanding Inflation…
and its impact…how do
investors define inflation?
Which car can you buy with Rs. 8 lacs
today?
What if I borrow Rs. 8 lacs from you
for 3 years and….
….return Rs 8. lacs to you when 3 years
are over…what car will you buy…?
Is this fair?
….o.k…. I return Rs 8. lacs to
you…with interest!!!
Happy now?
Why Equity works better than Bonds
….after sacrificing what you could
have owned 3 years back… wishing
for better standard of living…what
would you rather have…???
Not bad!!!
….and how about realizing some
dreams…???
Understanding Investing
“Investing is forgoing consumption
now in order to have the ability to
consume more
at a later date.”
- Warren E Buffett
• Should you be DEPOSITOR or SHAREHOLDER of a
bank?
• If you lend money to L&T for 10 years at 11%, what
kind of implied faith are you reposing in that company?
• Do the Tatas, Birlas, Ambanis, Mittals, Bansals and
Agrawals of this world run their companies just so
that they can pay you your 10%???
Questions…
you MUST ASK every investor…
Earnings drive stock
price …….
TCS*
2,195
19,197
-
5,000
10,000
15,000
20,000
25,000
2005 2014
68,786
416,860
-
100,000
200,000
300,000
400,000
500,000
2005 2014
27.2
NET PROFIT (Rs cr) Market Value (Rs
cr)
22.2
ITC 18.4 27
25,793
280,708
-
50,000
100,000
150,000
200,000
250,000
300,000
2004 2014
1,619
8,768
-
2,000
4,000
6,000
8,000
10,000
2004 2014
CAGR
(%)
CAGR
(%)
*TCS got listed in FY05
Note: Fiscal Year Ends
Source: MOAMC, Capital Line
Earnings drive stock
price …….
1,168
3,603
-
1,000
2,000
3,000
4,000
2004 2014
31,587
130,551
-
50,000
100,000
150,000
2004 2014
5,091
20,700
-
5,000
10,000
15,000
20,000
25,000
2004 2014
Hindustan
Unilever
Reliance
Industries
11.9
15.1
15.2
14.975,132
300,405
-
100,000
200,000
300,000
400,000
2004 2014
NET PROFIT (Rs cr) Market Value (Rs
cr)CAGR
(%)
CAGR
(%)
Note: Fiscal Year Ends
Source: MOAMC, Capital Line
Earnings drive stock
price …….
Nifty 13 14.2
EPS(Rs) Index ValueCAGR
(%)
CAGR
(%)
122
414
-
100
200
300
400
500
2004 2014
Note: Fiscal Year Ends
Source: MOAMC, Capital Line, Bloomberg
1,772
6,704
-
2,000
4,000
6,000
8,000
2004 2014
FYI only…14.2% CAGR over 10 years means that Rs 1 cr
would have become Rs 3.77 crs!!!
Equity, yes!
For what?...to get extra return?...or… to
create wealth?
Why does everybody forward that Wipro
calculation through FB, Whatsapp and
Emails… and yet no one follows it!!!
What is the purpose of financial planning
and asset allocation?... And what role
equity has in it???
Should you hold hybrid products which
deliver average 12% for achieving goals?...
Or you need equity and debt separate
depending on goal?
Do Balanced Funds create wealth?
Do equity funds create wealth?
100x & Compounding
Understanding the Time-Rate combination for 100x
Initial Purchasing Power Value after 20 years Purchasing Power
after 20 years
(net of 7% inflation)
Why 100x?
100x enables accumulation of massive purchasing power
1
26
Debt Equity(7%) (25%)
1 41
100
Debt Equity(7%) (25%)
Debt Equity(7%) (25%)
100x – The Indian
Experience
Indian benchmark indices rise 100x in 30 years
100x – The Indian
Experience47 enduring 100x stocks over 1994-2014
Note: Multiples are based on stocks being bought at the low price for the respective year,
and held on to Mar-2014.
Why Professional Management of
Equities?
Sensex..BSE 30..what do we own?
Retail - 10%
FII – 27%
MF – 3%
BSE 500..what do we own?
Retail- 12%
FII – 22%
MF – 3%
WE DON’T OWN ENOUGH…
…IF WE DO, WE OWN MORE OF
JUNK…
…BEST COMPANIES IN INDIA
ARE OWNED BY FOREIGNERS…
32
Quality
Va
lua
tio
n
Low High
Low
High
Quality vs. Valuation:
What should we Buy?
How much should I invest?
Equity Allocation
Index
Low
High
How investors allocate
Equity
Allocation
Index
How investors should
allocate
Equity
Allocation
Low
High
BUY RIGHT…
…SIT TIGHT
…be in equity, be with Motilal
Oswal..
