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Investing in US stocks? Investment guru says India will generate higher alpha – Economic Times

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NEW DELHI: Investment guru Prashant Khemka, who managed developed money market for eight years, spent four years managing emerging markets like Korea and Mexico, and lived for 11 years in the US, says his personal net worth has been entirely invested in India.

Khemka said this is not because he believes Indian markets are going to outperform the US or any other markets, but the fact that the opportunity to earn higher alpha is much larger in India than any developed markets like the US or even other emerging markets around the world.

Why? The founder of White Oak Capital Management said Indian markets are inefficient.

India an alpha generator
“India is one of the few countries where there’s a very large mid and small cap segment of the market. A very few markets come to my mind in comparison. The US market is one, then we have China in Asia. In case of the US, it is an extremely efficient market. Institutional investing there is a centuries-old profession. But in India, it only started in the 1990s or mid-90s,” he said at Morningstar Investment Conference.

In India, it was a monopoly of UTI and maybe one or two other government institutions, he said, while suggesting that we are lagging many markets in terms of institutionalising our investor base in India.

Besides, the cost of transaction in India is very high and that contributes to lower liquidity.

“The impact cost is also high and it’s partly because the cost of transacting either due to taxes or duties, and all those add up. Speculators and arbitrageurs don’t find it worthwhile to trade in India. They play a very crucial role in supplying liquidity. If you don’t have liquidity supply from these participants, you are not going to attract institutional investors,” Khemka said.

“They are not going to find it attractive to research because they’re never going to be able to deploy any meaningful money in those companies, whose trading volumes are extremely low, not only on absolute terms, but also as a proportion of market cap of India,” he said.

Khemka pointed out a research, based on empirical data, which suggested how India provided the highest alpha and the most persistent alpha compared with most developed and emerging markets of a material size.

At present, Khemka said, there is a risk of overestimating the longevity of the impact of pandemic.

Three to five years from now, we might see travel tourism coming back with bang, he said.

“If you see some of the other major events in the world like September 2001 (World Trade Centre attack) was supposed to change the way we live. (Covid was) indeed as gripping back in February this year. That’s the reason why markets fell off the cliff. Since March 23, markets have been recovering fairly strongly and rightly, well ahead of everyone else realizing that the situation isn’t going to be as bad,” Khemka said.

Markets always ahead of themselves
Khemka said that the pandemic is a very unfortunate crisis and more than a million lives have been lost. But it is not going to cause as much damage to the economy, equities, companies and their cash flows, as was feared in February and March.

“We no longer worry about companies going bust. Some companies would have filed for bankruptcy but are a fraction of what would have been the feared earlier. The market recovered strongly as the impact on long-term cash flows was not big. Yes, this year’s and next year’s cash flows might be under pressure, but if market values are reflecting present value of future cash flows, then this year’s cash flows at the market wide level are basically two to three percent of the value of the market,” he said.

“If anything investors are still living in the six-month old world and they’re still very worried. If you listen to the earnings pulse of companies, they are talking about very sharp recovery. That’s what the market is reflecting. What you read in newspapers or see on TV would continue for a lot longer, just as was the case with the global financial crisis. But in 2009 markets bottomed around March globally and started a sharp rally. People in the media or investor community kept scratching their heads,” Khemka said.

Khemka said it’s just the tip of the iceberg and that the markets are way ahead of themselves.

“What markets rightly looked at was one of the longest bull markets in the US, which was the epicenter of the global financial crisis. So markets are looking ahead and properly reflecting at most times. On an aggregate level, they are efficient,” he said.

Earnings acceleration, at last
Khemka said he was wrong at predicting the timing of earnings recovery. The only consolation, he said, is that he was not alone in being wrong for a dozen years since 2008.

“Corporate earnings recovery is alluded awfully. There is a general tendency for all of us to believe that markets are going to get back to their mid-teens earnings growth. Over time, I’ve mellowed down my expectations. Often on something, you have to rethink and you do lose conviction in something like this. At this point in time, we may finally get a strong acceleration in earnings, but for the wrong reason,” he said.

The analyst said that 2021 is likely to see a sharp fall in earnings, followed by 20 per cent plus growth in FY22 due to a lower base.

“It’s a reasonable expectation despite the half or mid-single digits growth in corporate earnings over the last 12 years. It’s reasonable that corporates can at least grow in low double digits, which is in line with nominal GDP growth rate going forward. Let’s assume 5-6 per cent real GDP growth rate and about mid-single digits inflation, a nominal GDP growth rate of low double digits, India earnings would be in line with that rate over time,” he said.

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Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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