Indian Stock Market: The Oasis of Calm in a Turbulent World Market

Indian Economy: Decade for Supernormal Growth and Prosperity with Samvat 2079.

The Indian economy highly resilient may not be totally Decoupled from the World economy. With the kind of Structural and Economic reforms carried out in the last few years alongwith the implementation of 5G enabling digital lead growth, India will emerge as the growth capital of the World.

?The Indian economy has witnessed one of the best bounce backs with a V-shaped recovery across sectors post COVID in the world. With inflation in India around 7%, which is at a level witnessed earlier and fairly manageable when compared to four decade high levels of inflation witnessed in the western countries.

?With appropriate support and policy action of the Central Government and RBI, it has helped the people in the bottom as well as top of the pyramid recover and achieve overall economic prosperity. Over the last few quarters, the high end and luxury market has done very well across sectors like retail, real-estate, consumer discretionary, automobiles etc... clearly indicating an upshift in terms of overall wealth creation and more number of families making the transition from middle class to the upper class thereby resulting in overall increase in per capita income in India. India is slowly moving towards becoming the luxury capital of the world. The shift in this direction has been endorsed by one of the biggest and best known names in the luxury market in the world, ‘Louis Vuitton’ making Deepika Padukone the global ambassador of the brand, clearly indicating an Indian lead strategy.

?With the world being interconnected, when there is an issue in one economy it not only brings down the growth of that economy but also affects other economies and results in an overall slowdown. The certain economies do not grow or slowdown in sync with the world. They are called 'decoupled' economies.

?Economic and banking reforms which have been technology backed and implemented in India over the last decade like Aadhar, UPI etc. alongwith the speedy implementation of 5G which will provide seamless connectivity and transform the way people in rural India learn, transact and shop thereby giving a big boost to the bottom of the pyramid, which will help in overall economic prosperity and will result in higher consumption and overall growth in GDP. The big infrastructure push that the Government has provided and continues to do so is in terms of overall infrastructure development. With India having the demographic dividend advantage of young aspiring population and China+1 rhetoric world over makes the Indian economy and Indian stock markets a force to reckon with.

?With the Indian start-up traction and India poised to become the start-up capital of the world, with an estimate of over 250 unicorns by 2030 which will attract billions of dollars in investment and result in lakhs of jobs being created alongwith big manufacturing push with the Production Linked Incentive scheme across 14 sectors which will result in boost of manufacturing by 2024-25.

?The Indian stock markets have emerged as the best and possibly the only emerging markets investors want to invest in. With investment in China ruled out to a large extent, Russia not an option and uncertainty in Latin America, the Indian markets are possibly the best option in terms of emerging markets to invest world over.

?The biggest question that market experts are looking for is that is the Indian economy really decoupled from the rest of the world and the Indian stock markets and economy will continue to do well when the rest of the world is facing large number of headwinds mainly in terms of high inflation and geopolitical tension. The Indian stock markets rose sharply and performed better than the US markets during 2003-07 and that is the first instance of the Indian decoupling story being heard. However, in the 2008 meltdown the Indian markets were not spared either and theory was shelved.

?Investors should keep in mind that the Indian indices of Nifty and Sensex are INR based and global indices like S&P 500 is Dollar based hence currency plays a very important role in this comparison and comparing the Nifty 50 to S&P 500 may not be an appropriate comparison. For foreign investors in Dollar terms the Indian markets have always been a very bad performer. There has been adequate gain in terms of capital appreciation in stock prices. They have lost in terms of Rupee depreciation.?

?With interest rates going up due to the high inflation and extreme hawkish stance of the Federal Reserve taking the interest rates up by further 75 bps and depreciation of the Indian Rupee, foreign investors have been sellers in the Indian market for a while. The Indian markets have been holding up due to the constant flow of capital from domestic sources and relatively small and retail investors. Since April of 2020, millions of retail investors have entered the market and have invested small amounts of money to the tune of INR 40,000 to INR 50,000 but collectively has resulted in a force to reckon with and support to the Indian markets making the foreign investors relatively less significant than they were a few years ago. With spreading awareness more and more small retail investors are looking at investing in the equity markets on a long term basis thereby adding depth and overall stability to the Indian stock markets.?

?The world economy is facing very turbulent times with the dual pressure of inflation and geopolitical tension. This has resulted in the fastest rise in interest rates and has started to affect overall cashflow and liquidity of SME as well as large corporates.?With a risk of possible recession in the EU and US, the impact of this slowdown will be felt world over.

?The Indian economy and stock markets are relatively insulated and will perform better than most economies around the world. However, it would not be appropriate to anticipate a complete decoupling of the Indian economy and the stock market. There would be collateral damage that would be suffered by Indian companies that are world class in performance and cater to a world market.

?With the run-up to the General Elections 2024, there would be a greater push by the Government in terms of overall social welfare, infrastructure development, benefits to rural India. Thereby investors should invest in stocks that would benefit from this project outlay and spending over the next 18 months. With markets almost at all-time high again, there would be a correction followed by recovery. Investors should keep faith in the Indian economy and stock market as the next decade will and truly belong to India.

?India has become one of the most promising emerging markets to invest in and will witness flow of foreign capital once the interest rate increase is in place and more wealth will created in India in the next 10 years compared to the last 75 years. In the short to medium term there could be headwinds and risks to the Indian market but in the long term prospective the Indian stock market will outperform and the Indian economy will emerge a strong resilient economy making the transition from a developing to a developed nation.?

?_Dr. Farzan Ghadially.