‘It’s a Bull Market, It’ll Continue’ ... India

‘It’s a Bull Market, It’ll Continue’

 

India is in a bull market and it will probably continue. Seeing the enthusiasm about India abroad, inflows from foreign institutional investors (FIIs) could double from last year. But, there will be corrections and disappointments along the way as India still has economic problems. But at the end of the day, it will continue to have a very bullish market.

It’s going to be a wonderful, dramatic change, by which I mean a revolutionary change for India. We think a lot more opportunities would be flowing into India from an investing point of view. And, more importantly, Indian investors will get excited about investing in their own country. And one is going to see big growth in stock market investing and foreign direct investments into India.

There has been a change in sentiment. People have been following Prime Minister Modi and they want to know about the policies (Narendra) Modi will bring in. It will be important how fast Modi moves towards changing the functioning and ethos of the government machinery.

 

It’s true the earnings growth has not been as good as it should be. But, with reforms, those earnings numbers and estimates will be revised. Valuations are stretched. So, we have to be careful because there will be corrections along the way. One must also remember there has to be revision of those earnings estimates in view of the reforms that are planned for the economy.

 

We should be interested in consumer area in both retailing and production of consumer goods. And we should also be interested in the raw material sector, because reforms in that sector will benefit as there are a number of projects, including production of minerals that are held up because of various problems and government restrictions. Another area that will be quite exciting would be banking. Changes in banking regulations and restrictions will have a big impact as well.

Yes, we should believe the FII/FDI flows will probably double if the promised reforms take place. I also believe India can achieve 10% economic growth going forward.

The government has to revise social budget expenditures and ensure corruption is eliminated, which will probably result in lower expenditures in the social area and more investments in infrastructure. There is lot of corruption in the social programs and this has to be eliminated.

 

In coming days think there could be concerns about the currency. If the currency moves up quickly and gets too strong, that will not be good for the country.

The second concern is in regards to distribution of jobs. We need to see distribution of jobs through all the states in India and not only a few states.

 

Most of the midcaps will become large-caps because of the growth we are looking forward to. So, we should look forward and capitalize the wonderful opportunities in these mid- and small-cap companies, which will definitely go up at a much higher pace going forward.

There is high inflation because of the various inefficiencies in the economy, which is a result of various government restrictions. If one looks at the distribution system of the country, one will realize that inefficiency is the reason. So, it’s important that the restrictions are immediately changed, and that will result in lower inflation. Inflation is not only controlled by interest rates. It is also controlled by much more efficient distribution, by using modern methods and increased productivity.

 

And if the changes don’t come at good pace that may become the reason and there is a chance of disappointment. Modi has incredible challenge in front of him because there is embedded bureaucracy in the system which exists. And, any change will need strong hands and some aggressive stance to overcome these barriers. Modi has so far shown his expertise to be tough and straight forward were required to get the ball moving.

With the possible hike in US interest rates, the currency will get stronger and you may see inflows into fixed income investments because of the attraction of better rate. And that could have an immediate impact on EMs (emerging markets). Over the longer term, the US will have to be careful because higher interest rate could have negative impact on business that needs finance.

 

Yes, India is in a bull market and this is probably going to continue. There will be correction along the way and there will be disappointments as India still has problems in the economy. But at the end of the day, it will continue to have a very bullish market.

Happy Investing

Source :Economic Times