Analysts cite five key factors for their bullish projections for the Indian market. Domestic equity investor confidence continues to grow in India, with data showing a 44 per cent rise in the number of investor accounts over last one year to 24 lakh.
As risk aversion wanes amid stable macro data and sustained inflows from institutional investors, there are projections that equity benchmark Sensex, which topped the 32,500 mark for the first time in July, would get past the 1,00,000 mark over the next decade.
It is a great time to invest in India, says Mark Galasiewski, Elliott Wave International. “In April 2009, I gave The Economic Times a 15-year forecast for Sensex at 100,000 by 2024. I see no reason to change that or update that prediction,” Galasiewski said in a recent chat with ETNow.
Analysts cite five key factors for their bullish projections for the Indian market. Some say the next 10 years will be a golden period for the Indian economy and its equity market. And how!
ETFs may see robust inflows
Morgan Stanley says domestic ETFs are likely to see their assets grow 30 times in the coming decade, crossing the $200 billion mark by 2026. From a relatively small size of $100 million in 2009, ETF assets have grown to $8.2 billion in a span of eight years.
The global brokerage believes ETFs will gain further traction in India, as provident funds are likely to continue channelling investments to equities via ETFs.
Equity saving via retirement funds could touch $170 billion by FY2026. Within the retirement saving pool, provident funds will drive the ETF boom. In FY2014-15, the government mandated minimum equity investment from its annual inflow to employee provident funds (EPFs). The initial equity allocation in FY2016 was 5 per cent of incremental flows, which was increased to 10 per cent in FY2017. This flow is directed into equities via domestic ETFs. Over the past two years, the Employees’ Provident Fund Organisation (EPFO) has invested close to Rs 23,500 crore in equities via the ETF route. The labour ministry has increased the allocation to 15 per cent for FY2017-18. This could imply additional flows of Rs 30,000 crore into equities via ETFs.
Paradigm shift in savings behaviour
India is entering an equity-saving ascent, which is both cyclical and structural, as households shift out of physical assets towards financial assets. In addition to favourable demographics for savings, this transition is being driven by positive real rates, improving equity returns and better growth prospects. “We expect equity savings to equal 1.4 per cent of GDP by FY2026 (double from current 0.7 per cent), implying a cumulative equity savings expansion of $420 billion over the next decade. We expect a shift towards accumulating savings in financial assets and, within that, equity saving, to be propelled by falling age dependency and low risk aversion (as is typical of a young population) on the demand side, combined with macro stability and initiatives to educate investors, as well as progressive regulations, on the supply side,” Morgan Stanley said.
Robust liquidity ahead
Domestic equity markets may continue to see robust inflows from institutional investors in the coming years. “The heavy lifting for this super-liquidity cycle is likely to be borne by domestic mutual funds. We expect their flows to aggregate to $216 billion (Rs 14 lakh crore) in the coming decade compared with $45 billion over the past 10 years,” Morgan Stanley said in a research report.
The key will be systematic investment plans (SIP). Flows via SIPs have grown at a 33 per cent CAGR over the past five years, and at a 50 per cent CAGR over the trailing three years.
“Domestic mutual fund assets could catapult to $1 trillion in the coming decade from $100 billion currently,” the global financial services firm said.
The total assets under management (AUM) of Indian mutual funds (MFs) topped the ?20 lakh crore mark for the first time ever in August. According to the latest data from the Association of Mutual Funds in India, the total AUM as on August 31 stood at ?20.60 lakh crore.
India at cusp of superlative growth
An economy enters the strongest phase of growth when stocks, bonds and commodities rally together. With the rally in stock and bonds, Edelweiss Broking believes India is just one stage away from entering the strongest phase. From the three crucial pillars of the Indian economy, consumption and exports are boosting economic growth. Low inflation, profitability and increase in financial savings are majorly driving Indian markets. Edelweiss believes Nifty can touch 11,500 in calendar 2018.
“The next leg of uptick is expected to be driven by revival in earnings,” Edelweiss Broking said in a report.
Rating upgrade and deleveraging
Deutsche Bank believes there is a genuine case the rating agencies to consider giving a rating upgrade to India, or at least prepare the ground (S&P and Fitch) by first raising the outlook to positive from stable, as an acknowledgement of the positive changes that have taken place in India since 2013.
“The macro landscape has improved significantly in the last four years, but India’s sovereign rating has remained unchanged,” Deutsche Bank said.
In addition to this, India has become less vulnerable to external risks and its current account deficit (CAD) is expected to remain manageable at 1.2 per cent of GDP this fiscal, says an UBS report.
Also, corporate leverage is one of the biggest hurdles to capex cycle. Edelweiss Broking said, “India is at the end of the first stage of deleveraging. Private investments will pick up as profitability rises and capacity utilisation improves.”