Daily Voice: Anirudh Garg of Invasset PMS believes Nifty could cross 50,000 mark in next five years

The market concluded 2023 with a robust 19 percent return, and so far in 2024, we've observed a year-to-date return of approximately 26 percent. Currently, the markets appear to be entering an expensive phase, even factoring in a potential NDA victory. If the NDA does secure a win, we will benefit from a stable government for the next five years and an upgrade of India's outlook from 'stable' to 'positive' by Moody's.

Given these factors, I believe we could achieve returns similar to last year. However, after the initial positive reaction to the election results, investors should consider maintaining hedged positions. Generating profits may become more challenging moving forward.

Should one pick defense, railway, and infrastructure stocks after the polls?

In an economy emphasizing value and capital expenditure, sectors like railways, defense, and infrastructure appear promising. However, it's important to note that these sectors are not as attractive as they were a year ago, given the initial thrust of price expansion has already occurred. The future growth of these sectors will depend more on earnings expansion. There will be sharp corrections along the way, presenting good opportunities to add positions.

The upcoming budget will lay the foundation for these sectors, and we expect it to be favourable, further boosting the capital allocation which was significantly increased last year. With efficient execution, a focus on speed and consistency, strong order books, and a clear action plan from the central government, these sectors look attractive for the next 3 to 5 years.

Do you expect the Nifty to double in 5 years?

Yes, we do anticipate that the Nifty could double in the next five years, potentially crossing the 50,000 mark. Historically, the Nifty has grown at a rate of 12 to 14 percent, and in an economy focusing on value, additional efforts will be required to reach this milestone. However, we believe the level of growth that India is set to experience will make this achievable.

Currently, the Nifty comprises 60 to 70 percent new economy stocks, which are expensive and not particularly attractive to foreign institutional investors (FIIs) who seek quality investments. FIIs often find better prospects and valuations elsewhere globally, making the Nifty less appealing.

Nevertheless, the overall growth momentum that India is expected to pick up in the next five years will enhance the attractiveness of the Nifty to foreign investors, helping it reach the 50,000 mark sooner. Additionally, we believe the government should consider discontinuing weekly expiries in various indices, as they lead to unnecessary trading and index management.

What are the government's possible reforms for the next 5 years?

In the next five years, the government is expected to implement several key reforms aimed at propelling economic growth and development. Firstly, we anticipate efforts to lower taxes or at least avoid any increases, which would provide a significant boost to the market. Additionally, there will likely be substantial reforms in capital expenditure, particularly in sectors such as railways, defense, infrastructure, and power.

The government is also expected to focus on developing clusters for various industries, following a model similar to China's, to enhance competitiveness and innovation. Significant emphasis will be placed on policies for electric vehicles and artificial intelligence, promoting these sectors as future growth drivers. Investment in digital infrastructure, health, and education will be crucial to leverage India’s demographic dividend.

Furthermore, reforms aimed at boosting foreign direct investment (FDI) are expected, with projections indicating potential FDI inflows of up to $475 billion over the next five years. Enhancing ease of doing business, improving labour laws, and ensuring policy stability will be key to attracting and sustaining foreign investments. These reforms will collectively support India’s goal of becoming a developed nation by 2047, in line with the Prime Minister’s vision.

Do you expect the RBI to remain hawkish in the June policy?

With the recent moderation in inflation, the Reserve Bank of India (RBI) is likely to maintain its current stance and keep the repo rate unchanged at 6.5 percent in the upcoming June policy meeting. The RBI has paused rate hikes for several consecutive sessions, reflecting a cautious approach.

However, with inflation easing and GDP growth remaining robust, there is a possibility of rate cuts later in the year. Economists expect the RBI to stay accommodative but vigilant, ready to adjust policy as needed to support economic stability and growth.

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