Introduction:
Once in a blue moon phenomena around the world – Bulls are running wild and people are enjoying it. Before you make wild guesses the stock markets are having Bulls running all over them in Developed and Developing countries alike. The stock market party is not confined to Dalal Street. US, Germany , Japan and some other developed markets are also witnessing a stunning rally. But the similarity with India ends there. For the first time since 2010, major markets have reported higher earnings per share which analysts forecast may grow 15% this year. In India, markets have surged despite earnings downgrades for the fifth year in a row.
Better earnings growth and dollar’s weakness against major currencies have driven global market cap to a record $93.6 trillion on November 8. It is up 40%, or $26 trillion, since January, the highest absolute gain since 2003 when Bloomberg began compiling data. Indian market cap rose 42.6% to $2.23 trillion during the same period, the highest percentage gain among top 10 markets.
With better balance sheets and higher market caps, key benchmark MSCI World index is at 20 times the trailing earnings, against a historical average of 17.
Indian Bulls’ strength is nowhere near the bulls running wild in the developed countries. Market cap of Indian Stock exchanges is just 7.78% of the US stock markets. The top four companies listed in the US have a total market cap that is higher than the entirety of the Indian markets. The basic case for a global investor to invest in Indian markets is the benefit that an exposure to emerging markets can provide. These are markets that grow at a high rate, and offer opportunities that developed markets may not. But to a US investor, there is a consistent stream of new businesses coming in as investment opportunities. US investor has made mind boggling returns from Amazon, Apple and Google. Therefore, Indian equity is attractive only when it offers something that a developed market would not.
What can NRI’s do?
Property market is at rock bottom. History has proven that property prices at prime locations have doubled in all metro cities over a period of ten years. Need we say more?
Some banks are offering very innovative products where Non-residents are looking for safety of principal amount with higher rate of interest as compared to their home countries without worrying about exchange risk. This is a win-win situation for people planning to retire and settle in India after a long innings outside India.
What can Resident Indians do?
Till the time Rupee is not fully convertible, Indian Investors best bet is Mutual funds in India. And with huge surplus funds being made available by Indian investors in the hands of mutual funds, too much money is following very few quality stocks. Recent listing of good qualitative stocks and industry one being Insurance sector is a big positive for the Indian stock market. But ‘Dilli door hain’ meaning it is still time for the Indian Stock markets to mature in line with its global peers. There are stories of how Rs. 10,000/- invested say 15 years back in select stocks have given 500% and more returns. In the same way there are stories of how the same Rs. 10,000/- invested in many stocks have turned to be paperless. Insolvency and Bankruptcy Code, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Black Money Act and Benami Transactions Prohibition Act are at the initial stages of implementation. And its fruits will be available to the future generation.
Hope the Bears are not listening and having enjoying winter slumber. Let our Indian Bulls party all night (atleast upto the next elections).