Are we still in a Bull market?

In several discussions about our stock markets, the inevitable question that comes up is – Are we still in a Bull market? At times the people asking the question are really not aware of what a Bull or a Bear market is, they are merely articulating what they have read somewhere or heard on the TV channels. In this post let me try and define these a little, in the context of our markets over the last 15 years or so.

So let us start with the basics – the long term returns for Nifty has been in the range of 14% over the last 3 decades or so. You can define a Bull market as a period of time where the returns were significantly higher than this. In the 2003-2007 period the returns were in excess of 30% as Nifty went from about 2000 to 6000 odd levels. This period can therefore be definitely classified as a Bull market. The corporate profits grew 4 times in this period and the PE ratios approached the high 20’s by the time the run ended.

Contrast this to the period 2008 to 2015. The annualized return on the Nifty was well below the 14% mark. Though the markets went up and down the overall trend was negative. Volumes were generally muted and the overall sentiment was a negative one. This was very clearly a Bear phase of the market. This phase ended in 2015 December and since 2016 beginning we are in a Bull phase again.

It is important to note that in a Bull market there is often a possibility of fairly deep corrections, often more than 10% and at times even to the extent of 30%. In the last Bull run of 2003-2007 there were more than 10 such corrections. The recovery of the markets from such corrections ranged between 2 and 6 months. Even in the present Bull market which started in 2016 there have been 3 instances of such deep corrections. In each of these cases there was recovery in the markets and it went up more than it had fallen.

So, coming back to the main question of the post, are we still in a Bull market? There is a very interesting twist to this answer. For front line stocks ( say top 100 ) the profit multipliers have not been great yet and neither are the PE ratios at a very high level. So the indicators do not signify an end to the Bull market soon. From all available data it seems likely that the run will last till 2020 end or even more. Of course, unexpected events such as the incumbent government losing power can signal an abrupt end to it. In the meantime there will be deep cuts from time to time and investors should use it as an opportunity to buy more.

The broader markets with Mid cap and Small cap stocks are a different story though. Here the individual stocks have been battered down quite badly, in some cases being down by 40 to 60 % from their peak price. Though the recovery may yet happen, it is likely to be rather slow. In case it goes into a deep time correction without recovery then we will have to say that a Bear run has started for this part of the market. As Indian companies grow at different levels this may well become the norm where different part of the markets exhibit different buying levels and interest.

On the whole though, I am inclined to think that we are in a Bull run for the overall market – maybe more so for the large caps and less so for the others. Unless BJP loses 2019 polls, it is very likely that the run will continue till 2022 which will be the mid point of the next government.

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MF schemes with highest assets – should you invest in these?

I have been away from writing the blog for a while as my children are at home now and we had been to Bali for a vacation. It was nice to see that several readers have inquired as to when I am going to resume writing the blog. With all the interesting things happening in the markets I think this is a good time to start writing again.

Over the past few months the SEBI mandated categorization of MF schemes have now happened, thus bringing a lot of standardization for the investors. I was looking at the MF schemes that have been the most popular over the years. Now, just because the schemes have been invested in it does not mean that you must do so. At the same time there is a lot of value to these schemes being supported over the years by investors.

The following 6 schemes have the highest AUM, all of them above 20000 crores:-

  • HDFC Prudence fund
  • HDFC Equity fund
  • HDFC Mid Cap Opportunities fund
  • ABSL Frontline Equity fund
  • Kotak Select Focus fund
  • SBI Blue Chip fund

Should you be investing in these funds? For that it is important to look at the following issues:-

  • Fund manager credentials and longevity are normally good for all these funds.
  • With a larger AUM the flexibility of the fund manager to make quick changes according to the market situation is limited.
  • The mandate of the fund becomes critical in these situations. With the SEBI definitions in place a pure large cap fund will find it difficult to generate differential returns.
  • It will be imperative to look at the past records of these funds especially for the last year or so where the markets have gone through a volatile period.
  • While most of the existing investors can remain invested in these schemes for some more time the real issue is whether new investors should get into these or not.

Based on the above, it will be fair to say that both HDFC Prudence as well as HDFC Equity have really not performed well compared to both the Benchmarks and Peer group funds. If you are looking at a large cup fund you will be better advised to stick with the ABSL or SBI variant. However, for investors with a longer term time horizon, Kotak Select and HDFC Mid cap will be significantly better options.

Of course, there are several other great schemes where the AUM is not as high as these six funds but these are doing as well or better. I have some posts on these in my blog and you can go through them to build your own high performance MF portfolio.

A trip to Bali – Beaches and bonding

The regular readers of my blog will understand that travel is one thing which keeps me going. Fortunately, my family members are also keen on it and this has enabled us to visit several destinations, both mainstream and offbeat, where we have spent some great family vacations. This year we already had one in Goa and were not planning for another one so soon.

The genesis of our trip to Bali was the realisation that it will become tough to get a travel window for our whole family once the children start their professional careers. Lipi was particularly keen that we go somewhere outside India this time, since our last such trip was to Thailand way back in 2008. What with the issues of getting visas, Bali seemed to be the best option. Given the paucity of time again, it seemed a good idea to go for a packaged trip rather than plan one on our own. We were able to get Yatra.com to customise a trip for us. They were covering the airfare, accommodation and 2 full day tours in Bali along with the airport transfers for 42000 Rs per person which looked fine. We made the payments through our credit cards, got the required voucher printouts and were ready to take off.

The Air Asia flights have only hand luggage as per the ticket rules and the weight cannot exceed 7 Kgs. This meant each one of us had a single piece of luggage and had to make choices on what to carry – the good part was all of us were travelling light. The journey to Bali was a good one and we used the layover in KL to have breakfast at McDonald’s. KL airport has good WiFi and, as is the wont with every family nowadays, all four of us were busy with our phones for the rest of the waiting. The airport in Bali has a runway adjoining the sea and the descent of the aircraft was quite a nice view. Immigration was a breeze as they just stamp your passport and we were soon on our way to the hotel. In the short distance we had to travel, I was quite impressed with the sculptures on the road crossings – they were from Hindu mythology and mostly from the epics Ramayana and Mahabharata. Bali is having a majority Hindu population and they have evidently preserved their heritage and culture rather well. We need to take lessons from them.

Our hotel was in Kuta area which is a bustling place having markets and other commercial establishments. The hotel itself was pretty good with nice rooms, a well appointed Gym, 3 nice restaurants, a nice Spa and most importantly a great location with Supermarkets, fast food joints like KFC and Domino’s as well as good local restaurants. We went to the Kuta beach in the evening and it turned out to be quite a happening place. You walk through a busy market to reach the beach and there are several restaurants as well as some shacks proffering Beer and cold drinks. The beach itself was crowded but quite clean and the sunset was out of the world. I have seen several sunsets all over the world and the first one in Indian ocean  was somewhat special. A restaurant served us a drink named Kuta Sunset, which was quite apt. We also had a Seafood Pizza and some Fried chicken while we watched the sunset. After coming back to the hotel we turned in early as the next 2 days would be busy ones.

We started the second day with a hearty breakfast that had everything from Cornflakes to Muffins/Croissants and Nasi Goreng too. By 10 AM we were off to our whole day tour. The first part was covering several villages where artisans made jewellery and clothing. In the afternoon we went to the Kintamani viewpoint from where you can see Mount Batur which has a Volcano crater at the summit. The whole mountain area and the lake was great viewing and there are many restaurants where you can sit on the terrace and have your lunch with observing the views. The fish that we ordered was not cooked properly but the day was otherwise so good that we took it in our stride. Next we went to a Coffee plantation where we saw how Luwak coffee was made and saw the Civets that play a key role in it. We also got to sample many different kinds of Coffee which was truly an unique experience. The journey back to the hotel was a long one and we had dinner at KFC before calling it a day.

The next day we covered two important points of Bali. The Tanah Lot temple is for the Sand and Sea and gives you great views of the Indian ocean along with the rocks on the shore. The sculptures have definite Indian influence and it makes you realise how far Indian civilisation had traversed in the ancient days. You would think that better views of the Indian ocean are probably not possible but that will change once you go to the next point which is the Uluwatu temple complex. This is situated at a height and the cliffs give you a great view of the ocean. The monkeys in the temple complex are a menace and apparently snatch everything from food to eyeglasses to hats. Rinki and I had a nice time exploring the area and taking in the myriad hues of the sea from different viewpoints. The coup DE grace was definitely the Kecak Fire dance depicting scenes from the Ramayana, specifically the burning of Lanka by Hanuman. The dancers were superbly skilled and watching them perform as the sun sets on the Indian ocean is a heady experience. The trip back to the hotel was again a long one but the lingering memories of the dance kept us preoccupied. We wanted to try out some local cuisine that dinner while Ronju was hell bent on a Burger, which is his staple diet whenever possible. A compromise was reached where we let him go to his favourite haunt, namely KFC, while we searched for an Oriental restaurant. We managed one where Kung Pao Chicken and the local delicacy Braised pork went superbly well with the Noodles.

After our exertions of the first 2 days we wanted to take day 3 easy. I was all for going to see the Rice terrace that Bali is famous for but gave in to a more sedate day as Lipi was feeling a bit under the weather. Rinki and I spent some time on the terrace swimming pool in the morning, before we went off to have a pizza lunch at Domino’s. In the afternoon I took the children for a last look at the Kuta beach. Sitting in the shade with them and talking while nursing a cold beer was good fun. We managed to catch a great sunset once more and the children went frolicking in the beach once the sun’s rays had tempered down a bit. Ronju had his customary burger at Wendy’s this time and after we got back we went to another dinner – this time with all 4 of us.

Next day we were on our way back, again with a layover in KL. It was a smooth journey and the trip was a greatly enjoyable one. The best thing about Bali is the ease of getting there and familiarity with many things Indian. We will be back again as the Timeshare we have with Karma, entitles us to a few resorts there.