Record-breaking run in Indian stocks is drawing droves of investors, many for the first time, to the equity cult, ensuring the blistering rally has robust legs. Government policy initiatives to bolster growth are seen as the singular factor that would boost corporate earnings at a much faster rate and help override concerns of high valuations.
Some shares had built up froth but a quick round of correction in the early part of this week quickly gave way to renewed buying, lifting benchmark indices to all-time highs for two consecutive days. This underlined the strong appetite for risk assets. The top-30 Sensex and the 50-share Nifty have jumped 16-17 per cent this year, making Indian stocks the world’s priciest.
Fund managers say new investors are pouring a fixed amount every month into systematic investment plans, or SIP, to buy units in equity plans whose value has been rising on the back of the bull run. The rising inflow is a key driver behind the rally, and the consensus opinion among market gurus is for the trend to continue in the months ahead.
The Sensex, used by fund managers as a benchmark for their asset allocations, hit a record 31,074.07 on Friday to coincide with Prime Minister Narendra Modi’s completion of three years, of his five-year term, in office. Pundits say a host of fundamental changes he has brought to governance will increase the pace of economic expansion in the coming years.
Modi push
“The three years of Modi government has been a wonderful development for India and it has really created a base for Indian economy to grow at much faster rate,” Porinju Veliyath, managing director of Equity Intelligence India, told ET Now television channel. “I am extremely bullish on equity investing in India.”
Veliyath, who runs a highly rated portfolio management service, says 90 per cent of the growth in assets under his management to Rs. 10 billion happened over the past three years.
“The biggest contribution from Modi government is that environment has been created for the economy to move from black to white, from unorganised to organised and it has led to a significantly reduced corruption going forward,” he said.
“A new system of economy management is happening with a long- term vision.”
The Sensex closed at 31,028.21, up 1.85 per cent over the week and extending gains to 16.5 per cent so far in 2016. The Nifty-50 shot to a record 9,604.90 before closing at 9,595.10, rising 1.8 per cent over the week and up 17.2 per cent this year.
Quarterly earnings mostly either met or beat market expectations, and the numbers are widely expected to improve in the coming months helped by rising output, higher consumer spending and falling input costs. Benign inflation also prepares the ground for an accommodative monetary policy, which should aid faster growth.
The Federal Reserve’s hint that it would only gradually raise US interest rates buoyed markets worldwide, including India which is a key recipient of foreign portfolio inflows.
Boost for manufacturing
New Delhi’s “Make in India” campaign, which aims to launch the country as a manufacturing hub for both domestic and global markets, is taking deep roots.
On Wednesday, the cabinet approved a much-awaited policy to increase local defence manufacturing under a “strategic partnership” model where the administration would shortlist and then pick Indian companies to join forces with foreign firms. The winners will be given orders to make submarines, fighter jets, helicopters and armoured vehicles.
“For each platform, one private sector strategic partner will be chosen,” Defence Minister Arun Jaitley said. “You don’t set up a manufacturing facility if you don’t have any hope of getting orders.”
For long only public sector companies were allowed in the defence sector, but their performance has been abysmally poor. The paradigm shift will open the door to private sector companies such as Larsen & Toubro, Tata Group, Mahindra Group as well as recent entrants Reliance Group and Adani Group. The promise of orders will be a big incentive to boost investment and creation of jobs.
Lockheed Martin and Sweden’s Saab Group are in the race for the fighter jets, while companies in Germany, Spain, Russia and France are likely to be interested in the submarine tender.
FDIs on the rise
India was the top destination for foreign direct investment (FDI) for the second successive year, attracting $62.3 billion in 2016, according to data compiled by a unit of the Financial Times. The country’s stronger growth potential was a critical factor for the inflow. Locations in recession or facing high levels of uncertainty saw major declines.
“India managed to keep the crown as the world’s number one location for greenfield capital investment for the second year running — ahead of China and the US,” the report said.
China received $59 billion in FDI in 2016, with the US dropping to third place with $48 billion.
Globally FDI continued to rise in 2016, with capital investment increasing by more than six per cent to $776.2 billion, its highest since 2011, alongside an increase in job creation by five per cent to 2.02 million.
New Delhi has eased most restrictions on foreign investors since the Modi administration took office in 2014, opening almost all sectors. On Wednesday, the government scrapped the Foreign Investment Promotion Board, which had become unwieldy and often held up projects. Instead, from now on individual ministries would approve FDIs.
Steel Minister Chaudhary Birender Singh said on Monday that talks between ArcelorMittal, the world’s largest steel producer, and state-run Steel Authority of India Ltd for a joint venture were in the “final stages”, after a preliminary understanding signed in May 2015 lapsed on Sunday.
Talks between the two companies had hit a roadblock over disagreement on revenue-sharing as well on technology transfer fees.
ArcelorMittal, controlled by billionaire Lakshmi Mittal, has agreed to make concessions to seal the delayed $897 million automotive joint venture, Reuters reported. The deal would help SAIL, which has been in the red for at least seven straight quarters, compete with local rivals such as JSW Steel and Tata Steel who have foreign partnerships to make steel for the car industry.
The writer is a journalist based in India.
