Notes from the Investment Floor: What’s driving India’s momentum?
Avinash Vazirani examines the momentum behind the equity market and, while warning that investors must keep their heads, explains why he’s bullish about India’s future.
India’s government is fiscally strong
With the government in a relatively strong fiscal position, it has been able to respond effectively to the global economic situation with targeted action on specific areas where stimulus or help has been most needed (for example the provision of basic foodstuffs to around 700-800 million people), rather than scrambling to put out fires everywhere at once like we’ve seen in many developed markets.
Investors must keep their heads
Another thing worthy of note is that the equity market has been hitting new highs. As specialists in Indian equities that’s something we naturally welcome to an extent, but it’s important to look at how the market got there. Company earnings growth in India is actually pretty strong (forecast for 15%) but the market has been running ahead of that, to the extent that most companies in the market are becoming more expensively valued. We are valuation-conscious investors looking for ‘growth at a reasonable price’ so that means we need to be more discerning in our search for opportunities that the market may have so far overlooked.
Who’s buying Indian equities?
Taken all together, the strong fiscal position of the government, India’s excellent demographic position, the modest inflation, the healthy economic growth and the technical underpinnings of a growing pool of investors entering the market make, in our view, a compelling case for why investors should pay close attention to India as an investment destination. As mentioned earlier, they are risks that must also be considered, and it’s the job of active investors to help guide their clients through that and make the most of the available opportunities.
The value of active minds: independent thinking
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