15 Sep 2014

Tip-toed into autumn

Equity markets have tip-toed into autumn, faced with the continuing concerns of Russian expansionism and the barbarity of the IS caliphate. The ECB has finally launched its version of QE, just as the Fed is about to exit its own, yet markets seem to be holding their nerves. In India, the Nifty has added 152 points to close 1.9% ahead at 8106 after trading in a range of 3%. The benchmark index has held firmly above the 8000 level on the strength of FII inflows of more than $1bn so far in September; total FII flows now amount to $30bn so far in 2014, of which $13bn has been directed to buying equities.

In the short-term, the market will probably be influenced by external factors, but even at the current record levels of the Nifty, the market valuation remains around the long-term average, especially on a one year forward basis. Positive investor sentiment and the sustained FII inflows suggest Indian equities remain a good buy.

1 Sep 2014

Strong growth expected

At the close of the first quarter earnings season, the overall outcome looks prospective: although revenues improved modestly, EBITDA margins improved by about 1.5% on average. Moving them back up towards their long-term average. With corporate borrowings lower, interest costs also contributed to improved profitability, so that it looks like a cycle of earnings upgrades is upon us. The market has appreciated by 5.8% over the past two months but earnings have outpaced it, at 7.2%. So the market PE multiple has contracted from 16.3 earlier in the year, to 15.5 now. Future earnings are now being forecast to grow at 16% this year and 17% next, giving room for further market appreciation in the near-term. Longer-term, Friday’s announcement of a jump in GDP growth to 5.7% in the first quarter gives reason for optimism for sustained market momentum over a two to three year period.

Excellent results

The half-year report for Himalayan Fund has been posted on the Fund’s website at www.himalayanfund.nl , showing excellent performance in the first half-year; this has been sustained so far in the second half. The outlook for the Indian markets is for continuing improvement in earnings, supporting current valuation levels and offering the prospects of multiple expansion over a sustained period. It is time to buy the Fund, look on the website for instructions on how.