Recent media articles have spoken about Indian Indices hitting new all time highs, and the start of a new Bull Run. My thoughts Pro and Con on this subject. On any matter its better to hear both sides of the story:
- The bull run from ’04-07 has been followed by a flat period from ’08-13 (of Indices). A significant period of consolidation. But the economy has not been flat in this period, and grown by 5-8% per annum. This indicates a likely rise hereon.
- We may be economically at a trough right now, the bottom in terms of economy and growth. The inflation cycle is turning already. CAD is under good control. RBI and the banking sector are in good hands.
- A lot of projects have been cleared by the govt recently and investment is going to spike up.
- Indices valuations are at the average for India over the last 15 years, giving a fair chance of a rise, see Nov’13 NOTE
- Impending Elections, the BJP and AAP have raised expectations of people. Based on results, sentiments should improve.
- We have seen that FII buying has accelerated in recent times, and foreign ownership of Indian firms is at an all time high. The converse is that Retail has not been present in this market. If he starts investing (ie domestic investment mood improves) then markets will rise.
- We are at new Index highs, this may be a turning point for Retail to come back to the market.
- The PGCIL FPO has shown the kind of money waiting on the sidelines, for an opportunity to enter the stock markets. See FPO analysis.
Before you hit the buy button, do take a look at the converse arguments.
- FII money can be hot money. It only takes an US economic event for them to pull the plug on Indian investments. Events such as stopping of the QE program, rise in US inflation, or a rise in US interest rates. We are not even talking of a Black Swan, unpredictable, disaster event here.
- The Indian retail has invested more in Mid and Small caps, and these have not really recovered so far. In other words he is still staring at notional losses, and is he likely to come back to such a market?
- Corruption, poor governance, Indian manufacturing going downhill, electricity and power woes, infra woes …. do you think all this is going to change this year? Not very likely. Then how can industry / businesses and stock markets in India advance from these levels?
- The 2004-07 bull run in India was a global growth period where India was also a part. For USA it was a home price, low-interest and easy loans based boom that ended in disaster. We are nowhere near a big global uptick right now.
- The harsh reality is that Indian GDP growth has fallen to 5% and things are quite bad right now.
Based on all this, I remain positive for investors and investments. If one tempers expectations away from overnight riches, to a simple – double of FD returns, from this and the next few years, you should not be disappointed. A Bull Run is just a small possibility, and should not be the reason for your investments.
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