Despite Conflicts, Domestic Economy Stands Rooted

The frontline equity indices in India have moved up by almost 1 per cent since the start of the Israel-Gaza conflict. This shows that the Indian stock market has been relatively resilient in the face of heightened global tensions. This is due in part to the strong domestic economy. Last week, the International Monetary Fund (IMF), despite reducing its forecast for global growth to 3 per cent, has increased India’s GDP projection by 0.2 per cent to 6.3 per cent. This, in addition to the better macroeconomic numbers, gives us the much-required support.[EasyDNNnews:PaidContentStart]

While several economies continue to grapple with the challenges of inflation, we have witnessed a significant drop in inflation, comfortably aligning with the Reserve Bank of India’s (RBI) expectations. This positive development coincided with a noteworthy surge in the Index of Industrial Production (IIP). The dual positive news reflects the convergence of controlled inflation and amplified economic growth in India.

One of the greatest fears among investors is what if the current situation between Israel and Gaza escalates and crude oil prices see a sharp spurt. The implications for the Indian economy could be adverse, given that it relies on imports for 86 per cent of its crude oil requirements. Elevated crude oil prices could exert pressure on India’s external position, potentially leading to depreciation in the external value of the rupee. Nonetheless, what we have observed historically is that it impacts the Indian stock market’s relative performance against the emerging market only when it remains consistently above USD 100 per barrel.

Additionally, a source of reassurance is the shift in India’s oil imports. Since the Ukraine invasion by Russia, there has been a significant upsurge in India’s imports from Russia, now comprising 45 per cent of the total. Notably, these imports come at a nearly 15 per cent discount compared to the previous primary source, Dubai. Therefore, I am confident that unless the current situation escalates significantly, India’s exposure to potential adverse impacts remains relatively limited.

Moving forward, the pivotal factor will be the performance of India Inc. Historically, it’s evident that over half of the growth in earnings per share is intricately tied to India’s nominal GDP growth. Extrapolating from this insight, we anticipate that earnings per share will sustain a double-digit growth trajectory over the next few years, surpassing the long-term average EPS growth rate. Even the current quarterly earnings season is likely to be good for corporate India.

A robust secondary market often acts as a catalyst for an active primary market. September witnessed the launch of a remarkable 14 mainboard IPOs along with a multitude of SME IPOs. In this edition, our cover story delves deeper, extending beyond conventional financial metrics to unveil the key attributes of a successful IPO. The narrative underscores the significance of integrating qualitative factors with financial data, providing investors with a comprehensive perspective for well-informed investment decisions before applying for an IPO.

In another interesting story, we have tried to give you an insight on how to use popular concept of mutual fund systematic investment plans (SIPs) with the stock. The concept of a ‘stock SIP’ has been steadily gaining traction. Think of it as a structured approach to investing in individual stocks, instead of MF schemes. Our story will help you to identify the stocks where you can apply this concept and what other factors you need to know before starting stock SIP. We trust these informative articles will aid you in making wise investment choices. We will be back with more soon.

RAJESH V PADODE
Managing Director & Editor

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