It has not been a good year so far for the Indian equity market, but if you look at the Nifty from a global perspective, there is no doubt that it has managed to outperform its peers. The S&P 500 has declined 19 percent so far this year, while the Nifty is trading flat.
In an interview with CNBC TV-18, Ridham Desai, managing director at Morgan Stanley India, listed out the reasons behind this outperformance.
“The government has taken several steps to increase the share of corporate profits in GDP. In September 2019, it announced a cut in base corporate tax to 22 percent from 30 percent. That is when it all started. When profits go up, companies invest, they create jobs, wages increase – that’s the big cycle” he said.
“Corporate profits-to-GDP is at 4 percent now and it will probably go to 8 percent in the next 4-5 years,” he said.
Another reason behind India’s outperformance is its decoupling from the global markets.
“India’s correlation with oil has been broken down in last eight years. Indian markets are not behaving badly, even though the US is facing a possible recession. India is basically behaving like a large-cap stock in the Nifty,” he said. “We cannot decouple completely but sensitivity to global markets have certainly reduced.”
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As foreign institutional investors make a comeback, after relentlessly selling till June, Desai believes they have missed the big picture and are now realising that India is the ‘best house in a weak neighbourhood’.
“Financial is the place to be. A ferocious bull market is coming in the sector. We will soon enter a loan boom period, which will match the pace of 2004-07 era,” he said. “I will be a contrarian and say that one can go bottom fishing in the information technology sector. There will be some near-term earnings pressure on IT companies as the US enters a recession. But in our base case scenario, it will only be a 1-2 quarter recession.”
As investors look to navigate this volatile market, he imparted some words of wisdom. “It is a game of time. In a 5-7-year time-frame, there is a lot of money to be made. This will be a massive bull market, with only caveat being the 2024 general elections,” he said.
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