“Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.”
― Warren Buffett
And India looks set to give investors a field that they can really look forward to conquer. Here’s giving you a peek into the brighter side.
Short term realities may put up a difficult picture, but long term growth is on its way
Credit offtake and IPP numbers cannot start improving immediately. As the government involves in a complete evaluation and overhaul of policies; the impact of policy change on numbers will need at least 6-12 months to show. We can take comfort in the marginal improvement as of now, because the way I see it, the government is working at structural changes rather than quick-fix solutions. And this will be the key to the long term growth we are set to witness.
Volume led growth will really pick up in FY16-17
As expansion leads to capex in the beginning of the investment cycle right now, credit growth will start picking up meaningfully only in FY16-17. Our current quarterly earnings are poor because of the base effect. There was little volume growth and growth was largely in export-focused companies like IT and pharma. However, this base effect is now over. And while I definitely see high volume led topline growth happening only in 2016-17, I do not see a downside risk to the 17-18% growth in 2015-16, because the rate cut cycle has begun and will provide expansion in margins.
Global forces seem to be working on our side
The current readjustment in China makes Indian exports more competitive and can easily help India save $80-$90 billion of forex every year. US makes up for the concern of Europe slowing down, and monetary easing by ECB and Japan will help counter balance the impact of expected tightening by US. So basically, global forces themselves cancel each others’ negative impacts to India, leaving us in a sweet spot that we should make the most of. Even if we just maintain slightly above average export growth, we would do just fine!
There’s no need to stress about the budget
The government has pretty much already announced what it plans to do, and I don’t really see the budget changing course of the way things are as of now. Except for evaluating the quality of some numbers, investors can relax as far as anticipating the impact of the budget on their investment activities is concerned.
Our best is yet to be
Any market cycle has 5 stages viz. pessimism, optimism, expectation, growth, euphoria. As far as India is concerned, we have come out of pessimism, entered optimism post the elections, and are now at the stage of expecting growth. Assuming that the Government will deliver and no extraneous risk factors derail economy, we are about to enter an exciting stage where actual growth will happen and start reflecting in our financial numbers. And at some point we will enter euphoria. I think 2016-17 and 2017-18 will be great growth years with GDP growth in 2017-18 of around 8%. If we can achieve it, corporate earnings can easily grow by 25-30%.
This blog post is based on one of my articles published in Business Standard, where I address not only the bright side but also talk about the risks, SENSEX targets, and sectors that will drive growth.
Feel free to shoot questions or share thoughts in the Comments section!
