INSUBCONTINENT EXCLUSIVE:
By Jayant ManglikSure, the outlook doesn’t look too good if you focus on what’s being highlighted
Equity indices are rangebound, crude prices have spiked, Karnataka election results did not enthuse markets and interest rates seem set to
rise.
Meanwhile, the rupee continues to fall, perhaps corporate earnings have not grown as expected and the bank NPA story continues.
Then
there’s the positive side
Inflation is under control so far and GDP growth is steady
By conventional logic, nominal growth would be real GDP plus inflation i.e
This is the average growth expected across the country
This means there will be states which will grow at much more and those which will grow at much less than 12 per cent.
If Nifty and Sensex
represent all or most industries and maybe the best stocks, then by the same logic the growth in these indices would be much more than 12
per cent just as the laggards would show little or even negative growth such that the average is broadly true over the years.
Of course,
markets will always go into the excess territory based on sentiment of the day and the general outlook – domestic or international,
economic or other factors trending at that time
For example, after a spike in crude oil prices which dampen markets, any pullback in prices helps improve sentiment and push stock prices up
for the day.
So on a daily basis, the market does not look for any long-term confirmation or conversely, on a long-term basis, the market
does not look for daily confirmation of the overall direction.
Prices are a continuously moving target, always difficult to call because
that is the nature of markets
Suddenly, fiscal deficit and current account deficit could become primary drivers of the market at some point
Or the strength of the rupee, or policy rates announced by RBI.
Or some data point (e.g
somebody recently estimated that every US$ 10 rise in the price of crude oil could impact India’s fiscal balance by 0.1 per cent and the
current account balance by 0.4 per cent of GDP)
The strength of the US dollar against a basket of major international currencies also impacts our stock markets and we don’t really have a
Ten-year US Treasuries, too, impact our foreign fund inflow/outflow, and is largely out of our hands.
Yet, in my opinion, the outlook for
the market is favourable from here on
People are generally optimistic and ready to buy into any correction
Global and domestic investment appetite may fluctuate but the direction is clear
The India growth story is truly hard to ignore
So long as interest rates remain low and there is little action in real estate or gold, equity will remain the to-go investment destination
Every fall has been accompanied by a quick rise in the indices
The real arbiter will be corporate earnings
It may already seem stretched but one good quarter will reset the trend, and that is the expectation.
Also, we are not alone
Markets across the world are booming and perhaps people are giving less importance to local politics and more to the broad development and
progress story, which may go on irrespective of who is running the government.
Bear markets ignore good news, bull markets ignore bad news
Given the belief out there that the market will recover whenever there is a dip, we’re set for new highs which will be backed by strong
fundamentals for the foreseeable future.
I wouldn’t bet on any single stock, but instead invest in the Nifty to be bought via a systematic
investment plan, which sets one up well to gain from India’s growth which is primarily driven by private sector enterprise, and is not
necessarily dependent on government policies.
(Jayant Manglik is President of Religare Broking
