The new market moment has arrived, which provides investors with new opportunities and a rare chance to accomplish their dreams. But why do we say- this is a golden time for investors like you! You already know that Gross Domestic Product (GDP) will double by 2025. That means from US$ 2.9 trillion now; this is just a matter of approximation. India will become a $5 trillion economy in four-five years. Now, this is immense growth! However, several investors still have doubt and question: Can India become a 5 trillion US dollar economy?
Why The Time For Growth Is Now?
Here’s why we think $5 trillion is feasible:
• First, doubling our economy in the next 4-5 years means that India must grow at a real growth rate of 7-8% year-on-year basis, assuming an inflation rate of 3-4% year-on-year, that is 10.5-11.5% nominal growth rate. This figure may be challenging for some people, but let me tell you- many people have been growing at this rate for the past four years. This means that we must move on.
• At the same time, the rupee-dollar equation should remain constant at 71-72, which is not a big challenge!
• The government’s unremitting measures to promote the financialization of savings deposits in the right direction, that is, shifting from tangible assets to financial assets will further help the economy. Considering appropriate policy responses and revolutionary reforms, India is more resilient to today’s external shocks. In addition to this, it has other things too! The biggest growth factor will be the increase in per capita income.
According to forecasts, by 2024, per capita income is expected to increase from the current US$2,000 to US$3,500. Per capita income will increase by more than 75%! Crazy, isn’t it? But how will it help India achieve its goals? If you look at it, out of the $2,172, $1,500 is spent on basic consumer needs, leaving only $500 for discretional expenditure. As you can see in the table below, when India reaches about ~3,500 U.S. dollars by 2024, the 1,500 U.S. dollars will only increase slightly, making the remaining surplus of Indian discretional spending approximately ~3-3.5 times.
What Does This Mean To You?
Taking into account the high expectations of a favorable population, coupled with the government’s attention to urbanization and “digital India”, India will-buy, buy, buy! This will lead to improving the standard of living-people will buy more luxury goods, branded raiment, and increase travel in the upcoming years. Indian consumption contributes a lot to GDP. Therefore, compared with other emerging economies, India’s multiplier effect will be higher.
Now, the Main Question-What about the Stock Markets? Will they benefit too?
India’s GDP has doubled from 1.3 trillion US dollars in 2009 to 2.9 trillion US dollars in 2019 (not calculated at a fixed exchange rate). But, do you know, albeit GDP has doubled, Nifty also increased by approximately 3.6 times during this period?
If history can repeat itself, it means that we will witness India achieve similar tremendous growth in just five years, and India’s GDP will double by 2025. The stock market will also see a multiplier effect, and the Indian index will grow with GDP growth! But as the Indian index grows, not all stocks will rise. What should you do? This is very simple! Identify and invest in stocks with good fundamentals, which will help you experience true financial bliss!
Back To The Present
In less than four months, we have witnessed a series of events affecting the global and domestic markets. Here are 4 key events that affect stock market sentiments:
1. February 2020, began with the separation agreement between the United Kingdom (UK) and the European Union (EU), the latter being called BREXIT.
2. China and the United States signed a “win-win agreement” in January 2020. According to this, China and the United States pledged to increase US imports by US$200 billion above the 2017 levels, and China and the United States have agreed to halve some of the new tariffs it imposed on Chinese products.
3. So far, the biggest panic that the world has faced this year is economic, health, and politics, which are caused by the rapidly spreading novel coronavirus (nCoV). Due to this epidemic, China’s business and economic activities have almost deadlocked or stalled. As COVID-19 is made in Wuhan city, no countries will like to do business with China.
However, this is where the opportunity comes for some Indian companies. Considering that China consumes 30% to 50% of the world’s commodities, the cooldown in China will lead to lower commodity prices, which will benefit Indian companies. This will also add impetus and provide motivation to global companies to expand their supplier base, and support, strength, and boost “Made in India”.
Thus, Coronavirus is an Opportunity for Indian Companies
Coronavirus is an opportunity for Indian companies, as the risk of COVID-19 caused by high temperatures in India is not high, but it has caused tremendous havoc in countries like Italy, China, and Germany. Therefore, India has an excellent opportunity to take the trade of these countries in its court. According to Oswal, India has the highest expectations in the chemical field.
4. The 2020 Union Budget provides some positive effects, such as health care public-private partnerships, re-adjustment in personal income tax rates aimed at spurring expenditures, boost to the financial sector, MSME/start-ups ongoing investment in infrastructure, and reiteration of some/all projects like privatization-LIC, IDBI has been added to earlier pools (Concor, Air India, and BPCL). However, for the real estate sector, which is the foremost job generator, there is still much scope for improvement. The Minister of Finance chose to expand the fiscal deficit targets for fiscal year 20 and fiscal year 21 to stimulate economic growth.
Among the Important Events in the Balance of 2020, which will provide Swings to the Markets, are as follows:
US Presidential Election: If Mr. Donald Trump is re-elected for a second term, it will be a stamp of approval for his protectionist policies. This is not the case or a good scenario for an increasingly open world.
Regional Comprehensive Economic Partnership (RCEP): The RCEP trade agreement is likely to be signed this year. Taking into account nearly half of the world’s population and one-third of the world’s GDP, this will be the largest trade agreement in history.
State Elections in India: The ruling party in the center is witnessing significant fluctuations in wealth, winning with a bigger responsibility than before at the center in 2019 and it has lost several states-, and Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, and recently Delhi, as growing public outcry against the slowdown in economic growth, it escalate the pressure on the government to provide booster momentum for economic growth. The Bihar Assembly will be held for voting by the end of 2020.
Despite many pros and cons, investment is just like life, it goes on. India’s GDP growth may have bottomed out to the current level, and there is only one way from here-upward! This may take one to two quarters, depending on the government’s impetus and global factors. We need to actively position ourselves for this recovery to make the most of it.
Other current tailwinds include weak crude oil prices, good Kharif and the upcoming rabi harvest, forecast of another year of monsoon season, and the suppression of the decline in demand in specific industries such as automobiles and consumers, etc.
On the other hand, the headwinds are the continued impact or spread of the coronavirus on a global scale, the slowdown of MSME’s business growth, and the restriction on the availability of capital at reasonable interest rates.
Investors must constantly monitor the listing space and find such opportunities for themselves in order to maximize their wealth in the long run. We believe that even if selected large-cap stocks continue to attract capital inflows (not necessarily the same as in 2019), the quality of mid/small-cap stocks will still rebound in 2020.
After the Outbreak of Deadly Coronavirus, the Market Surged
At present, the biggest reason for the decline in the world market, including India, is the coronavirus. The coronavirus has affected business activities worldwide. The important thing is that the coronavirus is not a permanent problem. Like previous viruses, the outbreak will also be eliminated. History shows that 2 to 4 months after the outbreak of SARS, Bird influenza, Ebola virus, and the other viruses, Sensex had seen a sharp spurt. After reducing the coronavirus outbreak, the stock market may remain unchanged. History may repeat itself. Investors can not only make money at this time but also can see the amazing growth in the market through investment.
Now, the next question is, Which Sectors Will Prove To Be The Most Suitable For Investment?
India is a consumption-based country, so investment in primary consumption will prove to be better. In other words, investment in companies engaged in commodity-related activities that are related to daily needs will prove to be more trustworthy.
The most important thing is to stay calm and invest for the long-term, and don’t try to time the market and opportunity. Although this sounds like a cliché, its importance cannot be overestimated.
Always remember that compared to developed countries, our country with a population of 1.35 billion has an underpenetrated rate in many areas. This creates ample opportunities for many years to grow and generate wealth, as long as you invest your money in the right stock.
We recommend that you should start with a small amount that you can invest for a long time.
Before making an investment decision, it is advisable to ask yourself, “Is my buy and sell decision based on empirical evidence or emotion?”