Business Today

Its Looking Good

Brexit and a host of favourable domestic factors augur well for the indian equity market in the medium to long term
By Mahesh Nayak   Delhi     Print Edition: July 31, 2016
[Photo: Raj Verma]

The Indian equity market bounced back smartly after Brexit, with the BSE Sensex running up nearly 3.5 per cent in a week. Everybody on Dalal Street now seems to be asking two questions: Is there no impact of Brexit on the Indian market? And, can the Sensex remain at these levels and even surge further?

Indian stocks have been resilient because FIIs have not begun pulling out of the country. Also, there has been a sustained inflow into the market from domestic mutual funds. Indeed, domestic and global funds remain upbeat on India. The prevailing view among investors is that the Modi government is on the right track, interest rates in India would soften further and corporate performance is gradually improving. "Once the shock of Brexit starts to wear off, India among emerging markets will be one of the major beneficiaries," says Nilesh Shah, Managing Director & CEO of Kotak AMC, who feels the biggest positive of Brexit is that the US Federal Reserve will not hike rates in 2016, preventing a big outflow from India. There are also hopes of further quantitative easing or a rise in helicopter spending (infusion of money into the economy by the government) in euro zone and the US.

The markets, though, could be volatile - and could even correct - in the short term, believe analysts. "While the near-term looks hazy, we are investing from a perspective of medium to long term," says Mrinal Singh, Deputy CIO-Equity at ICICI Prudential Mutual Fund, which has seen sustained fund inflows. Concurs Shah:"The market is swinging between optimists and pessimists, and it is going to stay such in the near to medium term."

Meanwhile, after a long time, domestic mutual funds have begun receiving and investing large sums of money in the Indian equity market. "Monthly inflow of Rs 2,500 crore to Rs 3,000 crore from systematic investment plan (SIP) and provident fund money through the exchange traded fund (ETF) route has been a huge positive for the Indian equity market that has helped to counter selling in the market," says Vikaas Sachdeva, CEO of Edelweiss Mutual Fund. In fact, the Indian mutual fund industry recorded the highest ever asset under management (AUM) in the June 2016 quarter, crossing Rs 14 lakh crore.

Singh asserts that even if there had not been inflows into his funds, he would have stayed put in the market rather than booking profit at current levels. "Currently, the market is in a no-man's-zone and it can move either way. We have to ignore the near term and invest over a period of two to three years as fundamentals of the country as well as India Inc. are improving," he says.

The mid-term trigger for the Indian stock market will be the monsoon. "While the ground data currently is okay, we are in the middle of monsoon season. The first signs of impact of monsoon on our economy, especially rural economy, will be seen after the festive season. Similarly, the impact of the Seventh Pay Commission on the economy will also be seen during the festive season," says Singh.

The strength in the secondary market has had a domino effect on the initial public offer (IPO) market. Fund raising in the primary market in the June 2016 quarter stood at a nine-year high, with companies raising Rs 5,855 crore.

"The other reason money will come into the equity market is because other asset classes including debt, commodities, gold and real estate are currently low yielding. It's just a matter of time before we see pension and retirement money also coming into India," says Shah of Kotak, adding that global fund flows to India will get a boost because of negative interest rates in major developed economies in the world. He, however, believes that investors should do their research before picking stocks. "Unlike six months back, today it is completely bottom-up stock picking. I will be a select buyer in this market. You can't enter the market on the assumption that everything will be gold." Dont assume that it will be a secular bull run, a rising tide that lifts all boats, asserts Shah. "The bounce back has shown the interest towards Indian market, but in no way is it a one way street, and one can't invest blindly and get carried away," he says.

Agrees Singh of ICICI Prudential AMC. "We are sticking to the stocks of companies that are domestic-led, be in the consumption or investment space, over companies who depend on exports for their revenues. Even among domestic companies we are investing in large-caps. Mid-caps on an average are trading at almost 20 per cent premium to large-caps," he says.

It is a market then for a long-term player.

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