The fundamentals of Indian markets has improved considerably from 2000.
Making money in stock market is not just tough but requires a lot of patience every time you put your money. Retail investors are eager to invest in equities but lose patience as soon as market touches record highs.
With stock markets at near record high i.e. Sensex at over 31,000 and Nifty near 9,700, many feel they may be timing the market wrong because a fall may be just around the corner.
However, history has shown otherwise.
Let's dig into the past. Sensex rose to 6,000 levels in the year 2000 but closed at a level of 3,972, a fall of over 35 percent. Let’s take another example, in the year 2008, Sensex hit a high of 21,206.77 but closed at 9,647, a fall of over 50 percent.
Now if we look at the table closely, we will find that the closing value of the index is considerably lower than the high it hit in that particular year. But, then it has managed to surpass the high of the previous year to make fresh highs in the very next year.
The idea is to stay invested because stock markets challenge their old records and make new ones. This phenomenon can be seen in the year 2013, 2014, 2015, and 2017. The years in which it has not made a new high were largely due to global concerns.
“Nobody knows when markets will fall next, and staying invested gives you a far better chance of becoming wealthy. When the Sensex hit 6,000 level in 2000, many people doubted if markets were strong enough. By 2005, it was near 9500. In 2006, it hit 14000 mark before ending below,” Anil Rego, CEO and Founder, Right Horizons told Moneycontrol.
“Then came a period of lull, underlined by the fear mongering around the global financial crisis. The Sensex fell to multi-year lows, before slowing creeping up. By 2013, the Sensex was near 21,000 and today in 2017, Sensex @32000 is just round the corner,” he said.
Imagine the plight of an investor who took out his money from equities when Sensex was at 2000, explains Rego. In 17 years, his money would have grown 5 times or even more. Do you want to be the investor who missed out?
Morgan Stanley predicts Nifty to triple in next 5 years to hit Mount 30K while in the short term, it sees Sensex hitting 34000 by June 2018.
“If you remember between 2003-2007 Nifty earnings compounded at 39 percent and the index was up 7-fold, we expect earnings to compound by 20 percent in the next 5 years which could take the index towards 30,000. These are very modest estimates,” Ridham Desai, MD, Morgan Stanley said in an interview with CNBC-TV18 on the sidelines of 19th India Summit.
Global liquidity rally!
The fundamentals of Indian markets has improved considerably from 2000. We are at much better footing than we were 17 years ago which makes us (India) favourable investment destination among FIIs.
Global liquidity which has been a prominent factor in pushing Indian market played a key role along with domestic liquidity to push the market into uncharted territory.
There are many factors which could be driving a rally in Indian equity markets such as strong GDP growth, stable political outlook, lower inflation, expectations of a rate cut, pro-growth reform process such as GST, NPA etc., forecast of good monsoons, and strong rupee among others.
Foreign institutional investors poured in over Rs 40,000 crore in Indian equity markets so far in the year 2017. They were net buyers of Indian equities in 3 out of past 5 months.
“Make no mistake about this rally: this is a global trade. This global rally has been triggered by the shift of money from bonds to equity. Money is shifting from bonds to equity because of two reasons,” Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial services told Moneycontrol.
“One, since Central banks, particularly the Fed, are in the tightening mode, there is a consensus that the bond party is over. Second, for the first time in 9 years, there are clear signs of a global economic recovery. This global recovery is a synchronised recovery in which most of the regions are participating. Higher growth will bring higher earnings. Global markets are discounting that,” he said.
But, apart from global liquidity, there are many factors in India that favour a multi-year bull market. Formalisation of the economy, movement of savings into equity markets, preference for equity over debt, improving financial literacy etc. are mega trends favouring an entrenched bull market, suggest experts.
India remains the fastest growing large economy in the world with an increasing share in world GDP. India is witnessing strong flows alongside the strengthening of underlying fundamentals in the Indian economy which is indeed good news for markets.
“India’s economy has a relatively lower dependency ratio (ratio of people based on age that is not in workforce to those currently in the workforce) vs. other developed nations, and the trajectory remains favorable for India as other economies seem to be witnessing a bottoming-out uptrend in recent times,” Viraj Vajratkar, Investment Analyst, Sanctum Wealth Management told Moneycontrol.“This provides a strong stimulus as productivity gains from a larger proportion of the working population bolsters GDP growth, outperforming the global economy. Hence favourable demographics, as well as a recent firming up of fundamentals, should ensure a likely sustained outperformance,” he said.