We stand a 1.5 years ahead of the month when former Fed chairman-Ben Bernanke threatened to withdraw its QE3 program in May 2013, which caused chaos in the world markets. During all the hustle-bustle of the global markets, we witnessed the emergence of Fragile Five- Brazil, India, Indonesia, South Africa and Turkey.
But today India has walked a long way, from being a fragile economy to a strengthening economy.
India as a nation was struggling with its high inflation, wide current account deficit, low economic growth and high fiscal deficit; just then ‘Fed tapering announcement’ led to fall down in currency rates and capital inflows. INR rate plunged down to Rs.68.86/$*, at 3-year low. FIIs become net sellers, withdrawing more than 1,60,000cr from India within 3 months of the announcement- de-motivating India’s growth story.
Statistics projected a weak picture of Indian economy- inflation hovering around 10% (second highest in Asia), twin deficits weakening India- with trade deficit at 11.3% of the GDP in Q1- 2012-13 and fiscal deficit was as high as 4.9% in financial year 2013-14 all leading to weak investments and low capital formation within the country-plaguing the economic growth to less than 5%.
But, a strong change as early as in September 2013 swept in, when strong leader Dr. Raghuram Rajan became the captain of the sinking Indian economy. With all the tough decisions including monetary policy tightening, restricting the import of India’s favorite metal-Gold; trade deficit now stand at 1.7% of the GDP (The Hindu, May 2014).
In May 2014, strong leadership became even stronger when Mr. Narendra Modi took charge as India’s Prime Minister. Market sentiment turned overly optimistic from being pessimistic, FIIs pumped in money as new wave of growth was expected through governing leaders. Pro-investment growth in the nation led to regain in confidence for investors.
As we look today, fiscal deficit is expected to in control as government reduces its non-planned expenditure and improves tax revenues. Furthermore, as international commodities prices eases and demand-supply gap lowers, inflation eased at 6.46% with a downward trend. And 10-yr G-sec yields eased to 8.28% as on 30 October 2014 from a high of 9.24% in August 2013. Also, currency rate stabilities at Rs.60-61/$. Manufacturing sector expected to grow as interest rate cools off and ‘Make in India’ gains momentum; GDP is expected to 5.5-5.9% in current fiscal year (NDTV Profit, 2014).
Today Nifty is at all-time high of 8,330.75 from the lows of 5,118.85 as on 28 August 2013. Moreover, DIIs showed turnaround in confidence through injecting 4,000 cr in month of October (highest since August 2013). Corporate earnings expected to improve as economic recovery expected to gain pace and government policies take action.
We lay our hands for long bull markets; 1-yr Fwd P/E trading at 17.09 and expected EPS growth rate of 9.5% year ahead. Are you invested? Or did the pessimism of currency crisis led to bearish sentiment and you pulled out the money at 5,000 levels and booked deep losses? Nifty has garnered an annualized return of 48.39% from 28 August 2013 till date; did its unpredictability astonish you?
* value as on 28 August 2013
No comments:
Post a Comment