The Indian stock market will do well in 2015 is because, in our view, rupee will be lower than in 2014. A depreciating rupee will help exporting sectors like pharmaceutical, automobile, auto-component and information technology. The market comprises exporters to the extent of 45% in terms of weight, and this 45%, I feel, will go up 30-40% in 2015, taking the market up by 15%.
The market has already run up substantially since the new government took over. However, that has not happened for reasons we thought it would. The consensus was that it would go up because the problems afflicting the domestic core sector would be addressed. But in reality what has happened is that those core sectors are lower today than they were before the elections, be it power, steel, cement, infrastructure, oil & gas.
The market has actually gone up because of only one reason: the depreciation of the rupee. The rupee was 58 to a dollar when the government came and now it is 62. I think in 2015, rupee will reach even lower than 65 to a dollar.
India will continue to attract FII flows since it is a beautifully balanced market in which you have domestic consumption companies like Unilever and Nestle and at the same time you have great exporters - not the commodity exporters like iron or steel, but high value-added exporters like pharmaceutical and IT companies. And this is why it always attracts FIIs. Since FIIs started to come to India in 1993, there has hardly been a year when we have had a negative inflow.
I don't think investors should position themselves in the stock market based on outlook for reforms. The one line advice would be: Don't bet on reforms and buy stocks based on that. One should bet that there will be no reforms and then go ahead and buy stocks.
In the past, people who were sceptical that no reforms will take place and stuck to blue-chip companies with strong balance sheets are the guys who are smiling. Reforms in India are very hard. There are so many inter-locking things. There are realities on the ground of people and various interest groups.
The way the market is unfolding, I think investors should structure their portfolio such that they have about 40-50% in equity, about 30-35% in bond/debt and rest in gold.
The biggest risk I see is that our currency can fall a lot more than what we think. Another risk is that the acceleration in GDP growth that people are betting may not happen. People are betting on 6% to 7% and I think it be around these levels, give or take half-percentage points.