A Marathon In The Making

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The Indian economy is undergoing slow but steady structural changes and the pace of this development is now gaining momentum. The fiscal imbalances are getting sorted out and the government is steadily bringing in financial discipline into its budget. All those expenses outside the budget are either been cut or brought under the budget with adequate scrutiny. Thus, apart from the sterling corporate performances, the Indian capital market now also provides a stable and improved macro economy environment for investment.

Viewing the above in the backdrop of negative or marginal GDP growth in the advanced European countries and USA, international investors have very little choice but to invest in an emerging market like India. That India is probably the second fastest economy in the world, along with a stable democratic government, does definitely help the cause. Therefore we believe that the Indian capital market will continue to attract significant investments in the near future, resulting in ample liquidity. This, coupled with good and long-term strategic fiscal measures taken by the government, will ensure that the Indian capital market continues to remain buoyant and bullish during the remaining months of 2010.

With the great Indian consumption story continuing over the last couple of years, we believe India is now clearly entering an investment cycle. This will benefit the Indian infrastructure and capital goods companies in a big way over the next decade. While most of the frontline infrastructure and capital goods companies have already moved significantly over the last few months, there are significant value buying opportunities in the mid-cap and small-cap space if one can select the right company which may be supplying critical components and original equipment, etc. to the frontline capital goods and infrastructure companies. One can also look at acquiring mid-cap and small-cap auto ancillary companies having sizeable exports.

The new trigger for the market will come from the second quarter corporate results in October 2010. We will also have to watch out for the development in the international markets, particularly Europe and the USA as any major negative development there may affect the inflow of fresh investments into India, thus resulting in an adverse impact on the Indian markets. However, for the Indian retail investors it needs to be reiterated that India is experiencing a secular bull run and over the next five to ten years we will see unprecedented growth in Indian economy and the capital markets.

Retail investors with medium and long view should definitely start investing in appropriate sectors like infrastructure and capital goods. They should slowly build their position over the next few months in a calibrated manner to reap the benefit of the Indian growth story. Of course, there will be phases in between when the markets will temporarily undergo correction due to multiple factors but the overall growth trajectory will continue. Equity investment in India at this juncture, for medium and long term, is surely an effective way for long-term wealth creation.