The central government’s decision to cut excise duty on petrol and diesel, and tweak some GST rates, was seen as an indication that all wasn’t well on the financial front. The Reserve Bank of India — not just the World Bank and International Monetary Fund — too, had cut the projection on the country’s economic growth. Against that backdrop, Diwali was expected to be lackluster. But that wasn’t to be, as encouraging data print boosted investor sentiment.
Industrial production expanded by a better-than-expected 4.3% in August, suggesting a pickup in GDP growth that had slowed to a three-year low in the June quarter. Consumer inflation at 3.28% in September was also encouraging. Economists had predicted inflation to come in at 3.5% and factory output to grow 2.5%.
Trade gap is shrinking
Another factor that brought cheer to the market was trade data. India’s trade deficit in September at $8.98 billion was the smallest in seven months. Exports rose 25.67% and imports expanded 18.1%. The faster growth in outbound trade, despite fears of GST hurting shipments, helped shrink the deficit. In September a year earlier, the deficit was $9.07 billion.
Second-quarter results from companies have been mixed. Reliance Industries posted a 12.5% increase in profit. Strong financials of its telecoms unit, Reliance Jio Infocomm, was a positive surprise.
The market usually witnesses profit-taking soon after Diwali and ahead of the reporting season for foreign firms. But this year was different.
After climbing to new peaks and seeing off Diwali, it is awaiting fresh triggers to find a direction.
Investment culture is changing
The Indian investor has changed drastically in the past 12 months, with demonetization and the introduction of GST now having an influence on his decision. With that came a shift in investment to mutual funds and shares from real estate and gold, which have been the traditional assets for Indians to park their wealth.
The debt and equity markets are witnessing a deluge of money through mutual funds. Local institutions have been buyers in the market, supporting prices even as foreign funds offloaded holdings.
Sustained returns will add to the confidence of investors. That in turn will boost investment activity and push the market to higher levels.
Nifty in November
The Nifty climbed back after testing support at 9865, helped by strong purchases.
While the trend of ‘buying the dips’ is expected to continue, a key resistance is seen at 10500. On the lower side, the index will find strong support at 9900.
That means, the Nifty is likely to trade in the 9900-10500 range in November.
Investment in shares should be made with a view that the Nifty would hit 41,000 in the next 10 years. Even if the investment is for a short or medium term, the investor should still consider the long-term direction of the market.
Our estimates suggest the Nifty to be between 35,000 and 41,000 in 2028. By that time, the Indian market is expected to be valued at $6 trillion.
Let us look at some of the factors that could affect the Indian market and economy over the next ten years. That will help us achieve gains with confidence.
Factors that will push growth
Digitalization will see a leap, thanks to the Jan-Dhan program to ensure bank accounts to every family, Aadhaar linking, expanding mobile connectivity and GST. This, along with Big Data and other developments, will bring big gains to the stock market.
Digital payments and GST will allow banks garner information on the cash flow of micro, small and medium enterprises (MSMEs). It will allow the lenders to give loans to such businesses. That will improve the loan culture of the country as well as increase consumer credit.
Most of the loans given to the MSME sector is based on what they pledge. Availability of reliable data will help change this to cash-flow-based credit. Increased activity in the sector will create jobs.
E-commerce, too, will see big gains as a result of increased digital transactions and GST. Internet will cover 60% of the population, compared with 30% now. That will help create a stronger digital economy.
Online sector to see growth
By 2028, as much as half the internet users are expected to shop online. Digitalization will add 50 to 75 basis points to economic growth. By 2028, the average GDP growth can be expected at 7%. Higher per-capital income will encourage consumers to spend more on discretionary products than food.
The share of investment in GDP will increase to 13.5%, topping the long-term average of 11%. The Nifty will grow at a compounded annual rate of 15-20% in the next 10 years.
If these come true, it will be the golden period for the Indian market. It is logical to expect the Nifty to hit the 41,000 level by 2018.
Don’t miss out on the opportunity to invest in shares — be it directly or through mutual funds — or repent later.
(The author is the CEO of AAA Profit Analytics)
Read: Business News