Why Indian markets should bounce back strongly soon?

Why Indian markets should bounce back strongly soon?

 

Since the markets have fallen from the peak, all the investors seem to have forgotten the positive factors of India about which everybody was convinced earlier.

 

So let us revisit them to give us confidence in Indian equity markets.

 

The positive factors are:

 

v    Even in the worst case, India's GDP growth is expected to be between 7.5-8% which is much more than 1-2% GDP growth in US, UK and other developed markets.

 

v    Due to the huge difference in the interest rates between developed  markets (2% in US) and India(8%) more and more capital will flow to India and other emerging economies in future for better returns.

 

v    Domestic consumption remains strong due to rising salaries. This should fuel the demand for consumer goods, FMCG etc. pushing up growth in Industrial output.

 

v    Increased focus by government and more private participation in Infrastructure will ensure that there is huge growth in the sector ahead.  The flow of funds to this sector from both domestic and international sources will multiply many times in the next few years.

 

v    Markets are showing signs of bottoming out (as covered in our earlier Newsletter 06). This means that at this level there are very bright chances of finding under-valued stocks as compared to the time when Sensex was at 21000. But any person investing now should be mentally prepared to probably see some more pain in the short-term.

 

v    Even after big selling in equities by FII's in Jan-Mar period the foreign currency reserves have in fact increased by 7-8%. This means that they have not taken the money out of India and are waiting to redeploy it in India only.

 

v    A genuine concern is high inflation and commodity prices but India is cushioned to some extent by rising salaries. Also 'high inflation' and high growth' scenario in India is much better then 'high inflation' and no growth' scenario in west which is a precursor to recession.

 

v    Export oriented companies in India especially large size have shown a resilience to slowdown in US,UK markets and drop in US dollar. This is proved by healthy export figures of last few months. Hence it might be a great contrarian idea to look for good ,large sized  companies in this space as they are trading down largely due to sentiments (one example and not a tip is Infosys).

 

 

v    Savings rate remains high in India (around 25%) as compared to negative savings rate in US, UK and other developed countries. Only 3-4% of the total savings is invested in equities which is slowly expected to increase to world standard of 15% in few years. This will provide huge liquidity to equity markets in next few years.

 

v     Credit derivatives exposure of Indian banking sector is much less as compared to their western counterparts and the losses are only notional (just like the losses in our portfolio are not real unless we book them by selling). 

 

 

Learning of the week:

 

A smart investor should always keep the positive factors as well as risk factors in mind in both bear and bull markets. It enables him to make rational investment decisions irrespective of the prevailing sentiments in the markets or daily price movements.