Indian market is going through turbulent times. As markets all over the world are eagerly waiting outcome of the Greek election, India has its own set of problems to deal with. Coping up with a 9-year low GDP, burgeoning inflation, political upheaval with Pranab almost clinching the race to Raisina Hill, investors are just getting jittery and nervous.
So, is it a time to invest when the market may see a risk-on rally? CNBC-TV18 special show Investor Camp talks to Nirmal Jain, Founder and Chairman, IIFL to get the best advice.
Jain advises that this is the best time to buy equities as historically bull markets are born out of pessimism. Though there are many macro problems plaguing India, the government is trying to get its act together. He explains that if crude price falls, India’s balance of payment deficit may get under control.
Jain is confident that India and China have the capability to drive global markets out of crisis. However, at the same time he feels that India has to deal with its own macro problems and policy reforms have frustrated India Inc. This is the first time, he continues, that corporate India has boldly stated that ‘India is working without a leader’.
On a very positive note, he points out that the individual states of India alone can take India out of the woods. Despite hostile global environment and domestic political problems, states of India have managed to post double digit growth.
To elucidate further, he cites Gujarat, Bihar and Rajasthan which have double digit gross domestic product (GDP).
Here is an edited transcript of his comments. Also watch the accompanying video.
On Indian market
Unfortunately the market has been driven by FIIs, retail investors have been decimated and more importantly they have been followers. Therefore the FII sentiment is driven by rupee and currency movement and that is how the market has moved. But if really look at the potential of local market, it is huge. Last year, net inflow of FII money was USD 17. 4 billion and our domestic savings are USD 350 billion.
Historically bull markets are born on pessimism because if things cannot get worse, they start getting better and market can move little ahead of the policy directions. So today, the government is trying to get its acts together. If the crude oil falls then our balance of payment deficit may get under control and that will also bring our fiscal deficit under control and things can start recovering.
On global crisis
For last four years we have been passing through global crisis. From 2008 onwards, the crisis has happened mostly in developed countries like US and Europe. As we know they are smart people and keep finding some solution or other but they don’t allow the ship to sink.
As we see even the Greece banks were up 15-20% on the rumour that they might find a solution. But all these solutions will be temporary. We have seen in 2008-09 and 2010-11 but the root cause of problem is here. If you look at their debt it’s significantly higher in proportion to GDP and their growth has slowed. In terms of demography, they have aging population. Look at Italy or any other country, if the bond prices there are 6-7&% and the GDP Growth is near 0%, it is difficult to sustain for too long.
US economy has been recovering but not as strongly to drive the world economy. There have been positive and negatives but on the whole is recovering. Historically, US markets have done well in the year of election because no President wants markets to come down.