NIFTY 22000! be Greedy Just Like FII's

 

NIFTY at 22000 levels and the biggest question in mind is that is time to invest in equities.  It has become difficult to choose between large-cap, mid-cap and small-cap investments.  Yesterday we had a couple of sessions with different segments comprising HNI and retail and both of them had the same question about where to invest. Even many of them are now planning to be sitting on cash and stay sidelines for doing any investments. Do you all know that when you lose conviction in the market for investing it’s mainly due to lack of analysis of the market dynamics and its micros? Do you know when you follow herd mentality? Lack of visibility of the growth propensity of the market leads to an unclear vision for investing!

We need a new lens to look towards India from the FII’s point of view and not from being an Indian looking towards the Indian market.  The time has come when we need to change our style of looking towards India and see through the glasses of being a foreign investor)  Do you ever think how your investments will look from 23 years now when India celebrates 100 years of Independence? Where and what do we need to understand for investing for the next 23 years?

Those who are worried about election results and NIFTY 22000 and focused on predicting for fall well India –Average MSCI index Return of over 30% during the previous election years -2019, 2014, 2004 and 1999. Moreover, in 2024, we will witness global growth since 6 major markets are having the Presidential election and hence government spending at the last moment will drive growth for the global economy. Public spending will increase consumption in these 6 major election markets where India is also a part of it. 73% of the Global equity universe will head for election in 2024 (MSCI ACWI weighting ) and 54% of the MSCI emerging market.

Indian Micros and Not Macros

Strong credit outlook, capacity utilization at 80% , improving external balances, positive outlook for EPS growth, and significant oil import of around  45% from Russia leading to the low cost of energy are all the factors adding momentum to the equity valuations. Market Cap of India increased by over 80% in the last 3 years only. Gold prices rose by 65% over 2020-23. If we combine the Indian household equities, real estate and gold together increase from U.S $1.8 trillion to $ 2.7 trillion. This also includes real estate where property prices increased by 30%.  

Indian economy which is the backbone of the Indian capital market has many key rationales to be observed to find the expected growth of the market in 2024 and onwards.

• ·         Market cap to GDP at present at 120% compared to 10 years average of 87%.It might look expensive but if we compare India with the U.S. and China we find 155% and 103% respectively.
• ·         India is much more appealing compared to emerging market peers 12 months forward PE-wise.  India’s 12 months forward PE is 21.2x against the October 2021 peak of 26.6x.
• ·         If I have to calculate the premium of the current market we find it is at 86% to EM compared to 120% premium in October 2022.
• ·         Indian equities are getting more attractive for investments among NRI’s too. If we look at the NRI asset accumulation levels we find that currently, it stands at 17.5% which is much below the peak of 20% in 2021.
• ·         In the last 10 years gross fixed asset capital formation to GDP fell from 34% to 27% in FY 2021. The current climate is conducive for the economy to make a reversal.
• ·         Low Banking NPA ratio
• ·         Healthy Forex reserves to the tune of 600 billion  
• ·         Low external debt of India
• ·         CAD at 1.6% of GDP
• ·         40 million consumers travel by Air in India every year
• ·         30 million monthly online transactions for online aggregators.
• ·         26 million international Travelers from India
• ·         Infrastructure segment like highways are reducing the cost of transportation to the GDP from 16% to 9% and will further bring it down to 5%.
• ·         If we look at the bank deposits we find Rs1.5 million growth ( CAGR of 45% over FY 19-23)
• ·         Total ownership of BSE 200 by direct retail investors has increased from 8.5% in Dec-2019 to 9.8% in Sept 2023.
• ·         Domestic Mutual Fund ownership increased from 8.1% in Dec 19 to 9.2% in Sept 2023.

NIFTY 50 promoter shareholding is high. The promoter shareholding increased to 52.4% in FY24 (till date) v/s 41.6% in FY-19. This reflects the commitment of the management towards the business. As the per capita income of Indian consumers grows the growth will be reflected in white goods, FMCG, auto, healthcare services, travel, real estate etc. Emerging markets like India will not be impacted by the recession since the foreign ownership of assets for India among the EM market is just 28%. India is among the other Asian countries where the central bank RBI along with government reform measures is strong compared to China (Struggling with Real Estate Debt) and Japan (Increasing the Rate of Interest).

Conclusion:

The above rationales make it very clear that India’s micros are stronger compared to the macros defined under government policies and progress. India vs EM valuation has moderated from October 2022 levels to hover at 56% levels, a little above the 10-year average of 47%. China's doldrums will lead to more inflow into India as this is the next destination among the Emerging markets (Taiwan, Korea etc). Within the next 23 years Indian economy will be in a double-digit economy followed by many global bond and equity indices adding India to their kitty. Currently apart from India’s inclusion in the JP Morgan Global Bond Indices beginning June 2024, Bloomberg Index Services Limited (BISL) is planning ahead for the inclusion of India too their kitty.  The macro economy of India is much stronger compared to the Emerging market and Developed markets growth. It, 's time to investmarket's keeping 100 years of India’s independence while planning for any investments. Can any guess what will be Nifty when India celebrates 100 years of Independence?