After historic NIFTY milestone, where do the markets go from here..?
[An excellent analysis by Nimesh Shah]
25th July will go down as HISTORIC day for the market as Nifty touches Psychological 10k mark
Where does the market go from here on? Is it end of road for the market for the time being?
1. Firstly it is not only Nifty which is gaining….US, Europe are also on the upward trajectory with the MSCI All world Index at new lifetime highs.
2. Recent reforms have made India story standout in an otherwise tentative environment across the world. Unlike rest of the globe, policy momentum has remained strong which should strengthen and sustain economic recovery while ensuring that the India story remains resilient and more inclusive. Not surprisingly, India is likely to remain the FASEST GROWING ECONOMY of its size over the foreseeable future, expected to grow @ 7.7% vs 3.6% for the world as per IMF for next year
3. Benefit of following reforms yet to trickle in
· Housing for all by 2022 (urbanization, job creation)
· Agriculture (Double farm income by 2022, contain food inflation)
· Power sector reform (100% electrification by 2018, lower cost of doing business)
· DBT (improve quality of spending, fiscal rectitude for stable macro)
· NPA resolution & bankruptcy code (leaner banks, improve ease of doing business)
· GST implementation (raise overall revenues, improve ease of doing business, substantial increase in tax collection, growth benefit can be anywhere from 1-3%)
4. India Market Cap to GDP @ 1x remains below Taiwan(2.2x), Singapore(1.9x), US(1.5x), UK(1.4x), Japan(1.2x), Korea(1.1x) while ROE for FY18 @15% is second only to US [Taiwan(14.7%), Singapore(9.8%), US(15.9%), UK(8.6%), Japan(9.8%), Korea(11.1%)]. Clearly valuation is not in the bubble zone (Nifty 17x 1year forward; It has traded in this range half the time over 14 year history).
5. Macro story remains benign given visible growth with clear drivers
· Stubborn inflation has come off sharply. Better food supply management and measured increase in MSP have ensured lower food inflation. Apart from oil and food, benign international commodity prices have helped RBI to achieve its inflation targets leaving some more wiggle room for monetary policy to work
· Oil has been a game changer for India (saving ~ Rs. 1Tn pa) leading to improvement in twin deficits and inflation control
· Second back to back normal monsoon gives fresh leg to the rally as it boosts consumption and will help keep inflation in check
· Medium Term story is expected to see significant transformation given spate of reforms undertaken lately i.e. GST and the consequent formalization of the economy which will alter the landscape of India going forward.
· Excess liquidity coupled with accommodative monetary policy will be supportive of demand. Real rates have improved which should also support buoyancy in financial savings
· Expect some tougher reforms possibly - Land and Labor(possibly in the next term)
· Capital markets have benefited from financialisation of savings (Net Equity flows for MF’s have touched 100bn+ in April 2017 & May 2017; Life Insurance premiums are growing at 30%+). Expected low single digit inflation in Real Estate & Gold supports our assumption of sharp rise of domestic savings flow into equities
· Earnings growth for India Inc has been elusive over FY12-17 (~ 4% CAGR). However, FY17-19 should see sharp rise at ~18-20% CAGR, mainly due to lower base and higher contribution from global commodities with growth getting broad-based (Top 15 cos contributed 70% of FY17 earnings growth vs.50% in FY19E)
Risks being
1. Faster unwinding by the EU and the US central banks and implications on financial markets
10,000 on Nifty is just a number. BEST IS YET TO COME. Remain invested.
25th July will go down as HISTORIC day for the market as Nifty touches Psychological 10k mark
Where does the market go from here on? Is it end of road for the market for the time being?
1. Firstly it is not only Nifty which is gaining….US, Europe are also on the upward trajectory with the MSCI All world Index at new lifetime highs.
2. Recent reforms have made India story standout in an otherwise tentative environment across the world. Unlike rest of the globe, policy momentum has remained strong which should strengthen and sustain economic recovery while ensuring that the India story remains resilient and more inclusive. Not surprisingly, India is likely to remain the FASEST GROWING ECONOMY of its size over the foreseeable future, expected to grow @ 7.7% vs 3.6% for the world as per IMF for next year
3. Benefit of following reforms yet to trickle in
· Housing for all by 2022 (urbanization, job creation)
· Agriculture (Double farm income by 2022, contain food inflation)
· Power sector reform (100% electrification by 2018, lower cost of doing business)
· DBT (improve quality of spending, fiscal rectitude for stable macro)
· NPA resolution & bankruptcy code (leaner banks, improve ease of doing business)
· GST implementation (raise overall revenues, improve ease of doing business, substantial increase in tax collection, growth benefit can be anywhere from 1-3%)
4. India Market Cap to GDP @ 1x remains below Taiwan(2.2x), Singapore(1.9x), US(1.5x), UK(1.4x), Japan(1.2x), Korea(1.1x) while ROE for FY18 @15% is second only to US [Taiwan(14.7%), Singapore(9.8%), US(15.9%), UK(8.6%), Japan(9.8%), Korea(11.1%)]. Clearly valuation is not in the bubble zone (Nifty 17x 1year forward; It has traded in this range half the time over 14 year history).
5. Macro story remains benign given visible growth with clear drivers
· Stubborn inflation has come off sharply. Better food supply management and measured increase in MSP have ensured lower food inflation. Apart from oil and food, benign international commodity prices have helped RBI to achieve its inflation targets leaving some more wiggle room for monetary policy to work
· Oil has been a game changer for India (saving ~ Rs. 1Tn pa) leading to improvement in twin deficits and inflation control
· Second back to back normal monsoon gives fresh leg to the rally as it boosts consumption and will help keep inflation in check
· Medium Term story is expected to see significant transformation given spate of reforms undertaken lately i.e. GST and the consequent formalization of the economy which will alter the landscape of India going forward.
· Excess liquidity coupled with accommodative monetary policy will be supportive of demand. Real rates have improved which should also support buoyancy in financial savings
· Expect some tougher reforms possibly - Land and Labor(possibly in the next term)
· Capital markets have benefited from financialisation of savings (Net Equity flows for MF’s have touched 100bn+ in April 2017 & May 2017; Life Insurance premiums are growing at 30%+). Expected low single digit inflation in Real Estate & Gold supports our assumption of sharp rise of domestic savings flow into equities
· Earnings growth for India Inc has been elusive over FY12-17 (~ 4% CAGR). However, FY17-19 should see sharp rise at ~18-20% CAGR, mainly due to lower base and higher contribution from global commodities with growth getting broad-based (Top 15 cos contributed 70% of FY17 earnings growth vs.50% in FY19E)
Risks being
1. Faster unwinding by the EU and the US central banks and implications on financial markets
10,000 on Nifty is just a number. BEST IS YET TO COME. Remain invested.
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