Capitalise on the Robustness of Indian Economy

Major global central banks except for China, and especially the US Federal Reserve, are still on a war against inflation. It has become a credibility issue for the US Federal Reserve now as a battery of experts with their sophisticated models failed miserably to read the inflation monster earlier. They continued to hold the view that inflation is transitory for long before they were caught off-guard. Fortunately, India appears to be in a better position and reinforced with the Reserve Bank of India (RBI) governor clarifying that the inflation in India is near its peak and will be brought down to 4 per cent within two years. 

Yet, we may continue to see the market remaining volatile until and unless the US’ 10-year bond yield does not come below 3 per cent. Historically, 3 per cent has remained carved in stone for stocks and whenever the yield has crossed this threshold limit, the stocks have plummeted. We saw the Indian equity market represented by Nifty touching recent lows of around 15,200 in mid-June when the US’ 10-year treasury yield touched 3.48 per cent, its highest level in more than a decade. From this point the yield recovered almost 100 basis points and that coincided with the recent rally in the equity market with a gain of 19 per cent from its June low.

Secondly, a huge private and public capital expansion cycle is on the cards even as India remains one of the fastest growing economies in the world amongst the large economies. One sector that stands to benefit from the expected expansion cycle is banking. Both private and PSU banks can benefit from the ever-increasing need for capital. To understand the exact nature of gains to be derived by the financial sector in India, we have in this issue a cover story that focuses on the sector that has managed to attract more institutional money from abroad than the rest of the sectors.

In our special story we have discussed an open-ended question on whether the IT sector can be a good contrarian bet at this point of time. Read this story carefully as you may find something that could prove to be profitable for your portfolio. In the current issue we also bring to you a special report on the chemical sector – a sector that has clearly created huge amount of wealth for investors in the past few years. This special feature will keep you enlightened on the latest issues and opportunities faced by the companies in this sector. 

Any aggressive investor is always looking for opportunities that can help in multiplying wealth. If we simply look at the private sector’s capital expansion and that of the PSU sector happening in India, you will find that it is the railways, defence and renewable energy segments that are attracting maximum expansion capital. It will be in investors’ interest to scan opportunities in these said sectors. My reading of the above development is that it is an opportunity in disguise for long-term investors.

The Indian equity market is not plagued with any of the economic malice of inflation and extreme weather that many of the western or American economies are facing. Even the Chinese economy is stuttering with the central bank having to cut policy rates twice in a span of four months. India remains one of the strongest equity markets globally despite higher valuation. The latest quarterly earnings also reflect the robustness of India Inc. with no excesses in terms of leverage or capacity. So, simply put, the biggest mistake one can make in these markets is to remain out of the markets and expecting a market fall or a big correction.

RAJESH V PADODE
Managing Director & Editor