Waiting for eco survey? Here is why India remains brightest spot globally


NEW DELHI: There is always light at the end of the tunnel, and that light is India for global fund managers.

Gripped by the fear of global slowdown, equity investors the world over have been on a selling spree since the beginning of the year. The domestic market has managed to give negative returns to the tune of 11 per cent so far this year and gold has emerged the best-performing asset class. All the talk of a pre-Budget rally did not materialise on Dalal Street.

Yet, analysts say India is emerging as the only bastion of growth for the world economy. “We hope there is no further downside, especially in India, because it is the one bastion of growth that we have globally,” said Sanjay Mookim, India Equity Strategist, BofA Merrill Lynch.

“In most other places, there are concerns on basic development and given that India continues to be a beneficiary of low oil prices and the long-term growth potential is relatively assured, there should be no reason for the market to go down further,” he added.

Rahul Ghosh, VP-Senior Research Analyst, Moody’s, said in recent times investors have focused on emerging market economies where balance sheets are on the mend and India, in that respect has done well. “Inflation has fallen, external accounts have adjusted and hence, in 2014-2015 India performed relatively well,” he said.

The optimism of fund managers has hardly been replicated in the equity market. The BSE Sensex and NSE’s Nifty50 are already, technically speaking, in the bear market with both the indices falling over 20 per cent from their record highs hit in March 2015.

Yet, the Indian market makes a strong case for investors to put in money. Here is why:

1) Earnings growth is on its way: Sanjay Mookim of BofA Merrill Lynch expects the gravy train of earnings soon heading back towards India after missing out on it in the past few years. “We expect earnings to recover by the end of next financial year. Our hope is that the earnings recovery for the index will increase from about 5 per cent in March 2016 to somewhere around 12-13 per cent in March 2017,” he said.

He said a lot of that will have to do with base effect and the fact that rupee has depreciated, which helps several sectors deliver on earnings. “So we are hopeful that momentum will improve which will provide some sort of impetus to the equity basket,” he said.

“What could drive the market are, essentially, the earnings and earnings should improve, not in the next three months, but may be in the coming six months or beyond,” said Ravi Muthukrishnan, Co-HoR, ICICI Securities.

2) Consumption cycle resumption will aid equities: Experts on the Street are heavily banking on the recovery in consumption demand in India to prop up the market in the coming year. “The consumption space continues to deliver. In the December quarter trends across several sectors and sub-sectors indicate that the consumer remains resilient,” said Mookim.

The forthcoming Union Budget is seen as a major catalyst for the entire space as the market is expecting the government to give clearance to the recommendations of the Seventh Pay Commission. “The pay commission will be a big catalyst because it will put a lot of money in the hand of Indian consumers, and that part of the economy should continue to perform,” he said.

“Consumption is a very large catalyst which would continue the growth momentum for many other categories.”

3) FIIs will come back when the dust settles: Although, FII selling has been one of the, if not, the biggest reasons for the current downtrend analysts see them returning once the dust settles from the global wreckage. The MSCI India index is trading with a premium of 39 per cent to the MSCI Asia index. It still is overweight in many fund managers’ EM allocation.

“India continues to have a stronger growth among EMs and we believe that the strong economic growth of India is reflected in the overweight position of India in the asset allocation. This is also reflected in the higher premia that India is enjoying versus its peers in Asia,” said brokerage firm Prabhudas Lilladher.

India has been growing has clocked above 7 per cent growth rate in the previous three-quarters of the current fiscal year, emerging as the fastest growing big economy in the world.

With government capex spending multiplier kicking in the coming years, the days ahead seem bright, said experts.

“India, really, is a love story that continues for foreign investors. India allocation has, actually, been a great thing for them, but it is because redemption driven than negative sentiment on India that we have seen FII selling,” said Rahul Ajmera, Head of US sales, IIFL Institutional Equities.

Even though domestic investors have been keeping the boat afloat in their absence, it is FII money that can move the market higher. “A major trend that we may see, going forward, is the reallocation of money in favour of India, especially, from the foreign fund managers who allocate assets into hedge funds and mutual funds,” he added.