Short Review on Indian Market Economy
The steady flow of economic data suggests that we are in the first year of a cyclical upturn. Short-term market movements were never our forte at Ambit Capital. Our strength has been a longer-term perspective on India, both from an economic and from a stock market perspective. We have seen over the last three-four years again and again that on global sell-offs India does get pushed down but because of the strength of the economy, because of the strength of the structural changes in our country, the market does come back.
The three ordinances are now four, it is coal and insurance and the Mines and Minerals Development and Regulations (MMDR) act added to that. The four ordinances will become law and there is a reasonable chance that goods and services tax (GST) constitutional amendment might go through at least one of the two houses.
It is a clear recovery underway when we speak to a broad range of companies from toll road operators, cement manufacturers, industrial companies, you can see the early signs of an upturn there.The biggest positive is the land acquisition act amendment. Whilst India promoters will wait for this to become law before they start investing in fresh land, the fact that the government is doing this is a very powerful symbol.
Foreign direct investment (FDI) in insurance has been discussed endlessly. It dosn’t seems that FDI to come in on the back of the ordinance but to the extent the ordinance does look like becoming law in the coming session. It may be anywhere between $5 billion and $10 billion of FDI will come in on the back of the 26 % going to 49 %.
What tends to happen in our country is we tend to focus either on all the positive news and we get very excited and the market runs away or we go through bouts such as one over the last two-three weeks where we get very tensed about global events and local politics and we become very bearish. I think we are a little bit of the latter pattern and that is good for long-term investors.
A 25 % upswing in utility stocks is not unrealistic as the government is pushing power sector reforms had. By liberalizing the coal sector, around 300-400 million tonnes of extra coal will be produced over the next 2-3 years, which will be a big boost to the power sector.
Earnings downgrades and upgrades and gross domestic product (GDP) changes on a quarter-to-quarter basis, the impact on the markets is fairly modest. However, just to put some numbers around that, our estimates for Sensex earnings per share (EPS) growth in the current fiscal have been in the vicinity of 12-13 % for a while.
Sensex FY15 year-end target is expected to be around 30,000 and that has been our figure for a long time now and FY16 end, seems to be at the level of 36,000, as a result of recovery both in the market and the economy that is taking place.
Source: Internal Sources
