DSIJ Mindshare

MARKET TO REMAIN FIRM

While I am penning down this edit, the markets continue to correct. In last couple of days, bellwether stock indices have corrected by little more than two per cent. The fall is much sharper in the broader market where BSE Mid Cap and Small Cap indices have fallen by more than four per cent. The reason for such a fall is the muted FII action and jitteriness ahead of the two days Federal Open Market Committee (FOMC) meeting that is going to end on Wednesday. Many of the market participants and economists are of the view that policymakers this time may do away with the long-standing assurance that a key short-term rate is likely to stay near zero for a “considerable time” even after the likely culmination of the bond-buying program in October. This implies that we can expect the rate hike sooner than anticipated. We believe, whatever may be the outcome, it will only have temporary impact on the Indian equity market as long-term story of India remains intact.

This is quite visible from the type of foreign direct investment (FDI) we may receive from some of the major Asian economies. For instance, recently in the joint statement following Prime Minister Modi’s visit to Japan, PM Abe indicated Japan’s intention to invest USD 35 billion of public and private investment and financing to India over the next 5 years. To put this in perspective, on an average Japan will invest around USD 7billion every year for next five year against USD 2.2 billion annually that they have invested in last three years, more than tripling their investment. Besides, in his maiden visit to India, Chinese President Xi Jinping has made USD 100 billion investment commitments over five years. The next major announcement may come in during PM Narendra Modi’s four-day visit to the United States a week from now. The sectors that are attracting larger chunks of investment are railways, power, infrastructure and manufacturing.

What is really helping India to attract such investment is its strong, stable and decisive government at the centre. The 10 years of rule by UPA marred by the various scams and policy inaction had dented India’s image as an investment destination. Nonetheless, the first 100 days of the new government and their style of functioning (for detail sees my last edit) has once again started to build India’s image as a lucrative investment destination. Therefore we are confident of India’s long-term story.

In addition to the above, Indian economy is also showing early signs of turning the corner. GDP growth for the first quarter of FY15 has come in at 5.7 per cent exceeding consensus expectations. The strong rebound last quarter has been led by manufacturing and export sectors. Going forward, the fall in the commodity prices especially in global oil, gold and coal prices will have multiple benefit for the Indian economy. During 2010-2013, India’s deficits was amplified by surging global oil and gold prices, both of which are now in retreat with oil at 17month lows of around USD 97 per barrel . The fall in the commodity prices will turn the existing vicious cycle into a virtuous one and help in reviving the economy as well corporate earnings. Hence, the basic trend of the market is still bullish and the current correction in the market presents a buying opportunity.

This time, our cover story touches upon the same issue and tries to clear the doubts in the minds of retail investors about sustainability of the rally and the inherent strength of the Indian market. Story provides a perspective on what will act as the next leg of rally for Indian markets. We are also giving seven long-term recommendations that you will help you to build a strong portfolio.

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