India has been one of the fastest growing economies of the world for the past few years and it even outpaced most of the major economies during the pandemic-induced. The buoyancy of the Indian economy is reflected in the stock markets which attracted strong flow of foreign funds through the major part of the past decade.
The Indian markets appeared brighter than most global markets during the pandemic, thanks to a sudden gush of funds from foreign institutional investors (FIIs) and foreign portfolio investors (FPIs). Participation from domestic retail investors, too, recorded an unprecedented surge. They both worked in tandem and took the indices to record highs.
Before the beginning of all this brouhaha, the valuations of Indian companies and markets were well within a reasonable range which found strong takers from foreign funds. The valuations began coming down from their unreasonable levels with steep corrections through the past nine months of unabated selling by foreign investors.
But, despite all these ups and downs in the markets that are more due to macro reasons, rather than micro, experts are confident of the India growth story and its robust fundamentals.
But does it really hold true? Does the Indian economy really present a once-in-a-lifetime opportunity for wealth creation in the so-called golden decade? Or, are we in the midst of global geopolitical and macro risks and the golden decade is just a wish? As per Kamal Manocha, Founder & CEO, PMS AIF World, these are very important questions that investors have on their minds today and so were discussed at a panel discussion at the PMS AIF World 3rd Mid-year Summit that was held recently.
PMS AIF World is a new-age investment services platform focused in the space of alternates for those HNIs who are looking to do analytics and knowledge-driven good investments.
Is India at a risk as an economy
According to Samir Arora, Founder & Fund Manager, Helios Capital, whether India is at a risk or not, needs to be seen in context of what happens in the US – its slowdown, inflation, interest rate hikes, et al and whether all this can really affect India.
“In today's context, I was very negative on the Indian markets going into January, and we had 25 percent cash in our long only funds”, Arora said. “But today, we are more or less fully invested with only 3 – 4 percent cash, because I think that the US as of now may have a mild recession which can be handled by India actually very well, because the absolute growth of India then looks more attractive on a relative basis, which in itself might not be very big, but on the relative basis we're seeing growth”. The softening of commodity prices further will also help India.
Arora believes that a large part of the US correction is over, for which the input was high inflation. And some of the inputs going into that inflation, like commodity prices and shortages, have gone away. “Therefore, may be four to six months later, the inflation numbers there might look a little bit going down, and therefore the US Federal Reserve may back off. But for India, if that is the scenario, we can handle it quite reasonably well”.
Mild recession is good for India
Hiren Ved, Co-Founder, Director and Chief Investment Officer, Alchemy Capital Management Pvt Ltd., is of the opinion that it is practically impossible to suck the entire excess liquidity out of the system because every time in the past (across economies) when the central banks have tried to tighten the liquidity, the economic growth has slowed down and they have to leave the liquidity at that somewhat elevated level.
“Look at China, every time growth slows down, you have to give another injection of liquidity and I think it’s akin to giving a patient, external glucose, and every time the glucose goes away, you have to give the next bottle of glucose”, Ved said. “And I think the differentiation that I tell a lot of investors about India and most of the other global economies is that India is a natural growth market, you do not necessarily need to stimulate the economy to drive growth, which is the case with many other large economies today, because of demographics or maybe because they've already reached a level of leverage”.
Today most of the developed economies are 200 to 250 percent leverage to GDP and India is nowhere near that level. “So I think the benefit that India has got is that there is a natural growth in this economy”, Ved added.
In the past mild, recessionary conditions have actually been very good for India to grow. India's macro-economic situation has become more stable, it has become less vulnerable than what it was in the past. “In relative terms, at $80 to $90/barrel oil price, India’s, software exports now take care of the total oil import bill which was never the case 10 years ago”. Ved said. Unlike in the past, every time the oil prices spiked to about $120/barrel, India had a macro problem at its hands which according to Ved, it is in a far better situation to manage some of these shocks.
According to Ved, inflation is no longer a relevant concern, it is the mild recessionary conditions that have gained the spotlight and “I think India is perfectly capable of managing that”.
So, it is clear that experts are not majorly concerned about the effects of macro factors on Indian economy. They are more than upbeat, rather quite confident that India will come out stronger and a winner despite the series of current challenges faced by global economies.
They are optimistic about the sectors like, capital goods, specialty chemicals and consumer discretionary. These sectors can see strong growth momentum in the coming year or two.
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