Equity markets are trading at record highs and the bull market rally continues with raging confidence. There are ample reasons why the stock markets are so bullish. The Q4 results of India Inc have been satisfactory so far with no meaningful disappointments as such as the impact of demonetization was already factored into the market. In the meanwhile, oil prices have fallen by approximately 13% in the last one month alone. This will have a positive impact on the market over the next few months.
“The fiscal deficit has narrowed to 3.5% of GDP, which is a good sign of things to come. Although the reason India’s forex reserves have been hitting record highs ($372 billion) is because of capital inflows from abroad. In the future, as the forex reserves increase to a level that the RBI and the Finance Ministry are comfortable with, they might ease the restrictions on capital outflow. Such developments could attract more capital into India and strengthen the rupee,” says Tejas Khoday, Co-Founder & CEO, FYERS, a thematic investing platform for retail investors and traders in India.
In the current scenario, there are some interesting trends emerging. Here we are highlighting some investment themes that could potentially deliver great returns going forward:
# Monsoons: The monsoons deliver 70% of India’s rainfall and with positive weather forecasts by the meteorological department at 96% of the 50-year average (89 cm), there are many sectors which will indirectly benefit from this. “Basically, good monsoons increase the income of farmers and hence their spending capacity. Companies which cater to this demand will do well. Tractor manufacturers, FMCG companies, fertilizers and chemical companies will be the primary beneficiaries,” says Khoday.
# Home Loans: With interest rates in the lower end of the band and oversupply in the housing market, the demand for home loans is steady. While the real estate companies which build apartments and housing complexes are facing problems, home loan companies continue to do well as exhibited by a majority of companies in the March quarter results of 2017. These companies are likely to continue their stellar performances.
# Middle-Class Income: India’s per capita income finally reached close to Rs 1 lakh in January 2017. It has taken 15 years to double from Rs 50,000. It is expected that around 20-30% of India’s population is expected to be in the middle-class group by 2020. “This comes at a time that inflation in India is relatively lower, so the purchasing power of the population is much more. In such conditions, companies which cater to the needs and desires of the middle-class population are likely to do well in the future. Cinemas, shopping centres, leisure and other related sectors like automobiles are likely to benefit in the long run,” observes Khoday.
# PSU Banks: Although all PSU banks are mounted with non-performing assets, the government has an agenda to recapitalize them and restructure them in a way that such a situation does not arise again. In the Budget 2017, the government decided to infuse Rs 10,000 crore to meet their capital requirements and bail them out of the mess.
According to Khoday, the finance minister has promised to infuse more capital whenever required. Since PSU banks constitute over 55% of the total loan book in India, they cannot be allowed to sink. This year alone, the government has given approval for the merger of State Bank of India with 6 other banks. Although they are not lucrative for long-term investing, in the short run, there is a reasonable money-making opportunity. For instance, in the last one month, a basket of PSU banks gave a return of 9% whereas a basket of private banks returned approximately 7%.
At this juncture, however, it’s better to avoid IT, pharmaceuticals, steel and heavy infrastructure companies.