Despite global concerns led by the Russia-Ukraine war, increase in the cost of living, the European energy crisis, global financial volatility, and monetary tightening across the world, the Indian benchmark indices are hitting new all-time highs.
Does this mean that the markets are overheated and bound for correction?
Anirudh Garg, the Fund Manager at Invasset PMS, believes it is the other way around. According to him, "Stock markets are always forward-looking. Brilliant minds spend hours researching what the economic trends will be going forward and take market decisions much before the actual scenarios play out".
In its final policy review of the year this week, the RBI modestly increased the country's policy rate by 35 bps, breaking the 50 bps trend, suggesting that the fight against inflation is still ongoing but that the central bank will also need to support the nation's economic activity.
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He also mentions that “though RBI has lowered the GDP forecast for Oct-Dec 2022 to 4.4%, the markets will be discounting what these numbers will be one year...or rather two years down the line. The growth for FY24 should be at least 7%, if not more. On the inflation front, it will be a game of Mole & Hammer, Central Banks will control it, but it will keep cropping up. General elections in 2024 will also ensure that government keeps a lid on inflation. We think the 5-6% range would be the realistic target."
During the half year ended, April-September 2022, capital expenditure reached Rs 3.42 lakh crore compared to Rs 2.29 lakh crore in the corresponding period last year. The government's intention to boost the CAPEX was evident when it revised the CAPEX target sharply by 35.4% from Rs 5.54 lakh cr. in FY22 to Rs 7.50 lakh cr. in the FY23 Union Budget. In TTM, the total government capital expenditures (state and center) have increased to 12.3 lakh crore.
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"CAPEX budget works out to 19.02 percent of the total expenditure of Rs 39.45 lakh cr. The last time that the capital expenditure share touched a similar figure was when it came in at 19.32 percent for the financial year 2004-05 (FY05), leading to a massive rally in the BSE Capital Goods Index of 40%+ in FY05 and 150%+ in FY06. All Capital Goods and related sectors like Railways, High Precision Capital Goods, Engineering Construction, Defense, etc. should be in the flavor for the next few years”, adds Anirudh.
According to a Morgan Stanley report on India's Impending Economic Boom, international firms' perceptions of India's investment prospects are at an all-time high. By 2031, manufacturing's contribution to India's GDP might rise from 15.6% to 21%, doubling the country's export market share.
With the required push by the Union Government in terms of corporate tax cuts, the introduction of PLI Schemes, and Aatma Nirbhar Bharat Abhiyan, the manufacturing sector will be the second sector to watch out for in the coming years.
The same report also mentions that India is currently one of the least indebted nations in the world, with low access to credit. However, with the help of the massive India Stack Digitization Drive under Nandan Nilekani, the credit-to-GDP ratio may rise from 57% to 100% in the coming decade.
As per INVasset, the Indian lending industry is bound for a multi-year bull run, with PSU banks at the helm. Public Sector Banks are re-rated on an expectation of improved performance over the following several years backed by enhanced margins and sustained loan growth. Digitization and a positive Capex Cycle will provide the required impetus to the financial industry, which in turn is one of the most crucial sectors if India has to hit the $ 5 trillion consumption mark in the next five years. "
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With a two-term majority democratic government in the center and diverse demography backed by solid demand of 1.4 billion individuals, this evolving Asian giant should be one of the best-performing economies in the coming decade.
