Lower Fixed Cost and Lower Borrowing cost
improves PAT and PE ratio. Domestic
consumption and rural earnings remain very strong and would rather flourish in
FY-23 for India. On the other hand, Indian corporate soon will be evaluated for investments by global investors in the coming
FY-23. But before all these things we need to t have an In-depth analysis. There is no point in having a debate about - Will Nifty Touch 19000 or will go to 12000. One needs to evaluate and understand the rationale behind both the number, As of date it looks like 19500+ but nay not be on the upcoming change of rationales. You may not get an 18months rally but that does not mean Nifty will not go to 20000 levels in long term. You might have become an aggressive risk profile investor just copying other investors but you need to get back to your original risk profile.
Next India Indian GDP will not be having a low base and neither the impact of lockdown and slowdown related trigger which will push up the GDP to a high of 20%. The borrowing cost of India will remain low and a lot of companies will raise money through commercial papers rather than banks and raising equities. Post-China fiasco due to Covid 19 and the recent stringent rules and regulations on international business by china, the Indian economy gets significant attention. Further global corporations are already investing in Indian equities but now they will look into Indian debt also from 2022. In the last 18 months, we have seen a flood of liquidity in the equity market well in 2022 we will witness a similar story for the Indian debt market.
The man-made or covid created inflation will gradually come down in FY-23 for India and as well as for the global economy provided no more damage or lockdown created by Covid -19. 2ndly Indian corporate profits will grow as the price cools down and the economy starts working at 100% capacity. The fixed cost currently is low compared to pre covid era which improves the EBIDTA margins in the coming year. On the other hand cost of borrowing remains and low and even an interest rate hike of 100 bps would not create many problems since corporate will prefer to raise funds from the debt market rather going to Banks and NBFC. This will improve the PAT margins and EPS growth for FY-23. Further, as international debt comes into play in FY-23 is potentially good news for India's domestic corporate bond market, which foreign investors have largely overlooked.
The next year Indian GDP growth will depend more on economic sectors rather than just being focused on Metals, Chemicals, Pharma, and IT. Well, the broader index may not reflect the gap reduction between valuation and price but the underline stocks will reduce the gaps. India will remain one of the fastest economies to grow within the EM basket. The demand for Goods and export of services for India will keep rising as global economic imbalances will take more time to settle out once the withdrawal of liquidity gets in place. India will manage to get a GDP growth of 6.5% to 7% in the calendar year 2022.
The consumption theory of the Indian economy will rise since the impacts of COVID have adversely affected the employment & income levels of the workers in the informal sector (largely in the non-agriculture sector in rural areas & high contact services sector in urban areas). This recovery will play a big role in the consumption sector. Indian IT industry service export will long-term reward for the economy and investors. Any rupee Depreciation will play an advantage point for the sector.
On the other hand, high public Capex in infrastructure should help to crowd in private investment and boost medium-term growth, in our opinion. Further being an election in FY-24 the government has exactly two years to make any turnaround at the grass-roots level and make some strong improvisation. The government has also indicated a National Infrastructure pipeline of US$1.5trn which will add a significant infrastructure boost up. Government borrowing will be attractive and will attract international players to look into the same.
The current FY-22 Budget has already laid a slow path for fiscal improvement and keep the same in mind the government has the significant option of expenditure since the broader economy is yet to function at 100 % capacity in the current scenario. GST collection has been within the range of Rs.1.30 lakh cr in the last couple of months when the Indian economy is yet to work in 100% capacity. Hence when the broader economy will be functioning at 100% capacity then one can easily figure out the type of numbers in GST that will come up.
From July to Sept of FY-22 the net quarterly profit is up by 46.4% YoY to Rs2.39 trillion. This growth will amplify when the economy will function at 100% capacity and demand imbalances will contract to bring inflation down resulting in corporate profitability growing more.
Next year the global bond markets will open up in a big way for the Indian economy when India will be included in the Global Bond Index. Of the two indices which matter the most, JP Morgan’s Government Bond Index-Emerging Markets (GBI -EM) could be the most influential with the potential for one-off US$15-20bn flows on the announcement.
Next year funding sources apart from equity will play a big role and the same will be a big opportunity for India to get inflows in quality papers. It is being expected that Beyond the direct benefits of index inclusion—it could trigger $170 billion in bond flows over the next decade, lifting Indian bond prices while lowering borrowing costs—this milestone could have profound implications for the country's currency, corporate bonds, and equities. For example, if added, India could represent 9.2% of the JPM GBI-EM Global Diversified Index, making it the second-largest country in that benchmark, after China.
Indian equity markets may not be like the last 18 months but the Nifty at a stable rate will move beyond 19000 in FY-23. India now enjoys the growth not only of Domestic but also in International attention. During Covid-19 the bilateral relationship with India has a white-collar segment that speaks loudly about the demand for quality manpower. On the other hand, due to covid19, much single bread earning family members are now witnessing double earnings as the other members of the same family is on the job. (wife, grown-up children). As we said earlier domestic consumption is waiting for stupendous growth and as well as the attention of international markets. Remember that India is yet to work and open up at 100% capacity just like the Pre-Covid era.
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