Better times ahead for the Indian stock markets. The best time to invest is now!
The thought of the rupee depreciating further, has sent worry pangs into the minds of many businesses, analysts and market mavens. At a time when we are boasting of the bulls on Dalal Street, further slide in the currency raises concerns of a rise in inflation which may lead to a rise in interest rates. With crude breaking above the $70/bl mark and given that our imports are inelastic in nature, markets are expecting an economic tightening sometime soon.
At a time when export sectors like IT, pharmaceuticals are facing adaptive challenges, higher import prices will lead to a lower balance of payments. Capital-intensive and leveraged businesses may face cost-margin pressures from a rising interest rate. Although banks have continuously been increasing their provisioning, challenges to debt-servicing can add fire to the NPA fuel.
The landscape currently is surrounded by such factors. However, we see these as transient in nature. Our long term outlook on the economy as well as the Indian stock market is extremely bullish. Steadily growing at a healthy pace, our economy can grow threefold in less than ten years. In these times of historical exuberances, our stock markets have reached capitalisations as high as 150% of GDP. You can do the math and see the market potential! On a lighter note, an ace investor was once asked, “When would our index become one lakh?” He replied back asking, “Which one, Sensex or Nifty?”
India is better positioned as compared to most other economies of the world. With a growing demand, liquidity, credit cycle, things seem to be in good shape and thus equity should definitely outperform as an asset class. We say this at a time when investment in equities is still concentrated to the major towns. Increasing flows from smaller cities and households can create a potential demand for equities. And most emerging markets not being as hot a spot, foreign flows into India will continue. Since timing the market is a fool’s game, we believe the best time to invest is now!