The Indian stock market has been relatively weak for the last couple of months due to China factor. Also the fact that the ruling party BJP lost a crucial state election to an alliance of strong regional parties added to disappointment. The regional parties managed to win as they combined forces against the BJP. Prime Minister Modi had personally campaigned extensively, but it failed to reap electoral dividends. This was the second major political loss (first being State of Delhi), after Modi's tremendous win in the national elections in 2014. There are fears that the economic reforms might get slowed, as the government might have to focus on populism. Nonetheless, soon after Bihar elections, the government announced increased FDI limits in 15 sectors , signalling that it will not slow down on its economic reforms agenda.
A few reasons to remain bullish on the India stock market is given below:
1) Best among Emerging markets - India remains the most attractive emerging market. Brazil has gone into a meltdown mode due to the commodity price crash and the weakness of the current government. China's economy remains extremely troubled, with growing credit stresses and slowing down of GDP growth. Massive overcapacity is leading to corporate defaults. Russia is not only seeing a GDP decline due to economic sanctions and lower oil prices, but will also have to pay large military costs now due to its war in Middle East. Compared to the other major emerging markets, India is a highly attractive destination. It's massive market, stable political situation and strong growth is already attracting a large number of investors.
2) Structural reforms - Make in India campaign- Changing a country with 1.2 billion people is not an easy task. The government has been implementing major structural reforms (such as GST, etc) that are slowly starting to show positive effects. India is cutting down red tape and inviting investments from foreign investors. Foxconn recently announced $5 billion investment and other multinational investors are also increasing investments in India's manufacturing sector. The good thing is that the corruption has significantly reduced under the watch of Modi.
Next budget has to be closely watched as wit is expected to introduce a new bankruptcy law and reduce the corporate tax rate . The financial sector is seeing massive changes, with the central bank giving licenses to several new organizations. This will increase competition and improve financial inclusion in a country, where millions do not have a bank account. The defence sector is seeing massive interest, as the government has opened it to the private sector. The roads and ports sector are also humming, with the government increasing capital spending on infrastructure.
3) Falling Commodity Prices - India imports billions of dollars of coal, crude oil and natural gas every year. The positive effects are already showing in increased profit margins of companies, as well as increased spending on cars and durable goods by urban consumers. Despite a poor monsoon, India's economy is all set to expand by 7%. With commodity prices not expected to bounce back any time soon, India will continue to save more than $100 billion a year from low oil, coal and gas prices. India remains one of the biggest beneficiaries of the global commodity price crash. With such reduced import bills, it is a possibility that Indian Rupee may appreciate as well in the near to mid-term!
A few reasons to remain bullish on the India stock market is given below:
1) Best among Emerging markets - India remains the most attractive emerging market. Brazil has gone into a meltdown mode due to the commodity price crash and the weakness of the current government. China's economy remains extremely troubled, with growing credit stresses and slowing down of GDP growth. Massive overcapacity is leading to corporate defaults. Russia is not only seeing a GDP decline due to economic sanctions and lower oil prices, but will also have to pay large military costs now due to its war in Middle East. Compared to the other major emerging markets, India is a highly attractive destination. It's massive market, stable political situation and strong growth is already attracting a large number of investors.
2) Structural reforms - Make in India campaign- Changing a country with 1.2 billion people is not an easy task. The government has been implementing major structural reforms (such as GST, etc) that are slowly starting to show positive effects. India is cutting down red tape and inviting investments from foreign investors. Foxconn recently announced $5 billion investment and other multinational investors are also increasing investments in India's manufacturing sector. The good thing is that the corruption has significantly reduced under the watch of Modi.
Next budget has to be closely watched as wit is expected to introduce a new bankruptcy law and reduce the corporate tax rate . The financial sector is seeing massive changes, with the central bank giving licenses to several new organizations. This will increase competition and improve financial inclusion in a country, where millions do not have a bank account. The defence sector is seeing massive interest, as the government has opened it to the private sector. The roads and ports sector are also humming, with the government increasing capital spending on infrastructure.
3) Falling Commodity Prices - India imports billions of dollars of coal, crude oil and natural gas every year. The positive effects are already showing in increased profit margins of companies, as well as increased spending on cars and durable goods by urban consumers. Despite a poor monsoon, India's economy is all set to expand by 7%. With commodity prices not expected to bounce back any time soon, India will continue to save more than $100 billion a year from low oil, coal and gas prices. India remains one of the biggest beneficiaries of the global commodity price crash. With such reduced import bills, it is a possibility that Indian Rupee may appreciate as well in the near to mid-term!
Of course, there are a few risks, which we will discuss in another blog.
