India is in a typical Goldilocks economy, where it is neither too hot nor too cold in the global economic scenario too, supported by potentially range bound crude oil prices and low overall commodity prices.
Sensex and Nifty made new all-time highs on Wednesday and extended to make yet newer highs on Thursday. While the Sensex and Nifty’s 14-15% rally so far in this year 2017 has spooked some investors, who are concerned about stretched valuations, one prominent markets participant is still bullish on Indian equities and corporate earnings.
Sandeep Bhatia, Head – India Equities, Macquarie Capital Securities, said on Friday that a revival in corporate earnings growth is imminent, which will drive further upmove in the markets. “In India, we have gone through a lot of painful fiscal restructuring exercise,” Bhatia said in an interview to BTVi.
Roads to recovery
The government’s financial push to revive stalled infrastructure projects over the last 1-2 years will now start bearing fruit and will start supporting the growth in company earnings, Bhatia said. “The kind of fiscal push that we see on the infrastructure side has been going on for the last 12-24 months, and now this will also start reflecting in earnings,” Bhatia said to BTVi
The ongoing development of roads and highways will give an impetus to earnings of carmakers such as Maruti Suzuki, Bhatia said, adding that recent strong earnings and optimistic commentary by a few capital goods and cement companies prove this trend.
Earlier Thursday, BSE Sensex made a new all-time of 30,366.43 points, while NSE Nifty rose to a record 9,450.65 points, continuing a sustained rally since the beginning of this year supported by BJP’s recent landslide win in UP state elections, prospects of revival in corporate earnings, implementation of GST (Goods and Services Tax), expectations of good monsoon and an upmove in the global markets.
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However, the strong rally has led some people questioning the rationale behind investing at such high valuations, with equity mutual funds also increasing their cash holdings in favour of waiting for a correction to put in money at more appropriate levels.
Macquarie’s Bhatia seems unfazed, though. “India is in a typical Goldilocks economy,” he said, adding that India’s domestic markets performs the best when the commodity prices are not too high neither too low, and when there is a broader stability in the macro around the world. “that’s the kind of situation we are in. We have good support of low oil prices. I think the oil prices will remain range bound between $55 and $60 per barrel of crude oil,” Bhatia added.
Further, while the US economy has also picked up steam, Bhatia said that China will also likely hold onto its growth. “So it is neither too hot, neither too cold kind of economic scenario globally,” Bhatia said.