India to be $6 trillion economy, buy stocks to capture that growth.
New Delhi, India | Red Newswire | Nov 13, 2015 02:57 PM IST.
Investment is all about patience, and to create wealth, investors need to endure some pain in the equity market.
A recovery in the economy marked by earnings revival and beginning of the investment cycle will be the biggest trigger for the domestic equity market, which has been range-bound over the past few months waiting for fresh triggers to move up.
While Asia’s third largest economy is recovering slowly, analysts say it has the potential to touch double-digit growth in a few years. When that materialises, India’s GDP would grow to $5 trillion-$6 trillion in 5 to 10 years from $2 trillion now.
An equity market discounts everything in advance. The recovery in the economy will start reflecting in prices soon and economy-driven sectors will outperform other sectors in the long run.
This kind of economic growth is bound to find a reflection in the stock market, and equities would be the right choice to capture that growth, say experts.
“The broad hypothesis is that equity market tends to have a correlation with GDP in a longer time horizon. We are roughly $2 trillion of GDP now, and if I assume that you can have 13 per cent kind of notional GDP growth rate over the next 10 years, then you could be somewhere between say $6 trillion and $8 trillion depending on what kind of growth you are assuming,” says Madhusudan Kela, Chief Investment Strategist, Reliance Capital AMC.
“There is a gigantic opportunity if you take a time frame of 5-10 years. People should not feel left out. Over the next 10 years, there is going to be wealth creation to the extent of $5-$6 trillion. Some of it will happen in the private domain and some of it will happen in a public market domain,” he said.
The equity market has been sluggish over the past one year, and the only two sectors that outperformed were consumer durables and heathcare or the pharma theme. Going forward, economy-related themes are likely to do better.
Analysts say realty and infrastructure stocks, which have been under pressure, may begin to look up soon, supported by the reform measures announced by the government. Earlier this week, the government relaxed foreign direct investment ( FDI) norms in the construction sector by removing two major conditions related to minimum builtup area as well as capital requirement.
Most realty firms are now raising cash by spinning off their non-core assets, which will strengthen their balance sheets, say experts.
While equity market sentiment has been weak in recent months, the market will reward patience. “Nothing moves in a straight line, especially in equity market. So investors should use every dip to accumulate quality stocks for long-term time horizon,” they say.
“The market is likely to witness high volatility during the rest of this year and early part of 2016 due to slow earnings revival, a mismatch between expectations and delivery from the government and global factors like slowing China and the impending US Fed rate hike,” said Amar Ambani, Head of Research, IIFL.
“But it would also present a golden opportunity to accumulate quality stocks. The year 2016 has a lot to offer, which could well lay the foundation for a big bull run,” he added. Another key trigger for market would be a further fall in interest rates. Some analysts project interest rates to fall by 100 bps in calendar 2016.
Despite global headwinds, such as the uncertainty around US Fed rate hike and the overhang of China slowdown, analysts on Dalal Street are confident that India would be able to revive its GDP growth in the coming years and outperform other emerging market economies (EMs).
“We are passionate India bulls and we speak by heart. We genuinely believe that India is going to be a $4 trillion economy in the next seven to eight years and there is going to be big returns on stocks,” Sunil Singhania, CIO- equity, Reliance Mutual Fund, said in an interview with ET Now two months back.
“India is doing relatively better than a number of other countries, and finally, it has reached a size which the world cannot ignore. That way India definitely stands out,” he said.
Singhania said the macro story for India was the best among all large economies. “So, while everyone else is fighting deflation, we are still fighting inflation. Things can only improve from here,” he said.
One of the most important factors that will keep the momentum going for the domestic equity market is participation of retail investors, which has picked up in 2015 via the mutual fund route. Experts advise investors to trust the power of compounding, which can multiply their wealth.
“The stock market requires discipline, time commitment and effort. Making money is not easy. So try to do investment either on your own, when you have the time commitment and energy, or come via the mutual fund route,” said Nilesh Shah, MD, Kotak Mutual Fund.
“If you are coming via the mutual fund route, try to invest on a regular basis. Every month save something and invest something. That small amount you save over a period of time will end up becoming quite large,” he added.
Shah advised investors not stop an SIP account even if the market corrects sharply. “In fact, those are the times when you should allocate a higher amount to SIP and let the India growth story take its own turn. Eventually, this long-term investment will help you create a lot of wealth,” he said.
Source: ET Bureau