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Start of golden era: Trend indicates better growth prospects for markets in 2015

MUMBAI: Today’s prices in the stock market are a reflection of tomorrow’s profits. The Indian markets have witnessed a buoyant trend that indicates better profit growth prospects for 2015.
This seems to be the start of a golden era, not just for the markets, but also the Indian economy. Many factors have fallen into place for the Indian markets and the economy. India is the only major country that is projected to see a pickup in growth momentum.

The growth cycle moved from slowdown to a recovery mode – last seen in 2009. And the industrial sector is expected to lead this recovery. This may start out gradually, but growth will pick up speed in the coming years.
A lot depends on the government’s reform-based approach. There has been a steady flow of reforms focused on areas like governance, ease of doing business and fiscal prudence.

In the first six months, the new government has announced labour reforms, diesel price de-control, the ‘Make in India’ movement along with progress in GST talks.
Not just that, the government has also extended diplomatic ties to attract foreign funding. We can now expect nearly $55 billion worth investments pouring over the next five years from Japan and China alone. Such concrete initiatives could herald an era of sustainable growth for India.

A significant development that could have an impact on India is the dramatic fall in global crude oil prices. India imports nearly 70 per cent of the oil requirement. An over 40 per cent fall in oil prices is good news for inflation. Retail inflation has moderated to 5-6 per cent from double digits last year.

Of course, it may rise in the first quarter of 2015 as the base effect wanes. However, most measures suggest that there is an underlying trend of disinflation. This could lead to a cut in interest rates. The RBI has also indicated the same.

This will help improve consumer demand. As demand picks up, capacity utilization will improve. Currently, only 70 per cent of the existing capacity is utilized to produce goods and services. Any rise in this increases the prospects of new projects and capital expenditure in the second phase. Already, there is a rise in capital expenditure. This can be seen in the fact that the value of tenders for new projects grew 2% from the previous year as of November 2014.

All of this could spur growth. India’s economy, measured by the gross domestic product (GDP), is expected to grow over 6 per cent in 2015. This is significantly higher than the 5.2 per cent expected in 2014. In fact, market expectations for the economic growth are higher at 6.5-7 per cent over the next 3-5 years.

All this optimism has contributed to the rise in the markets. The Indian markets have outperformed their Asian and global peers. The Sensex is now up over 30 per cent —a whopping 7,000 points this calendar year.

Our market remains the hot investment option. And this growth is expected to continue as cyclical, rate-sensitive and investment-oriented stocks find flavour with investors.
This is quite similar to the scenario in 2007-08. Yet, there are key differences.

Most importantly, there is a lack of systemic risks like the US sub-prime crisis. Secondly, global central banks are cutting interest rates now, unlike in 2007-08. Although more retail investors use convenient trading platforms, overall retail investor participation is low. As they increase their exposure to equities, markets may rise further.

Lastly, India’s fundamentals are much stronger today. The government is well on its path to reduce fiscal deficit and the current account deficit too has narrowed significantly. Financial savings (at around 7 per cent of GDP) and loan growth (at around 10 per cent) too have bottomed out, and can only head north.
The Economic Times

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