Indian Equities - The way forward by Reliance MF Sunil Singhania
Indian equity market has been amongst the best performing globally and hit an all-time high Nifty level of 9,000 in February 2015. Ever since, there have been some concerns and even some apprehensions.
Markets, like life, are never linear and there will rightly be ongoing concerns. We herewith share our take on the recent issues and also our views on the economy and markets going forward. While near-term issues will always be important, our conclusion is that we are headed to a phase of faster economic growth and therefore Indian equities may continue to deliver decent returns.
After recent reasonable consolidation, Indian markets are trading near long term average valuations on Forward Price to Earnings (PE) basis. Nifty Index is trading at 16.3 times of FY16 earnings. India market cap to GDP at 77% is much lower than its 2007 peak of 105%. Indian equity markets are relatively underpenetrated compared to market cap to GDP ratios in developed markets (US ~140%, UK 130%, Japan 105%)
Overall, in a world where growth is scarce, deflationary concerns are abound and interest rates are trending upwards India provides a rare favorable blend of high and rising growth, supportive inflation and downward interest rate trajectory. India would probably be the only large economy where interest rates look like falling.
In every growth story, there will always be short-term challenges. However our advice and request is to look at the big picture and while keeping an eye on the near-term events on the horizon, please don’t get carried away by them. As I tweeted a few days back, "India’s GDP at $4 trn in a few years is all that matters to long-term investors”. For others there is monsoon, Greece, interest rates, etc to worry about". Keep the faith!
