Indian Market Buy or Sell?

This year Indian Stock Market is one of the best performing market in the world, market has ran up more than 30% till October. From October onwards bulls are taking a breather digesting this big gain and consolidating in a range. From October onwards there were negative events like china Evergrande issue, rise in crude price, high inflation in India and world, new covid variant and Federal Reserve signaling early and fast tapering that impacting market, as market was at high valuation market needed a trigger for correction and finally it got it. Market has recently corrected 10% and now consolidating within a range. One of the biggest reason for this fall is the FII selling as they have sold roughly 80000 crore from October onwards, the biggest reason of their outflow from India is the premium valuation as most major brokerage firms from October onwards has been downgrading India, then the tapering of QE, and FII are selling in secondary market to put money in primary market as there is rush to get listed. We feel rather than a price wise correction this is going to be time wise correction and index is going to consolidate within a range, next big trigger is going to be Budget, Quarterly Earning, and State Election in five state, market will be keenly watching the UP election verdict as it is the biggest state of India.

POSITIVE FACTORS

1. Solid 2^nd Quarter Earning: Indian corporates reported strong second quarter result as it was supported by lower base and post lockdown higher demand from consumer. This quarter metal reported strong earning based on better realization and strong demand, banks also reported lower NPA and higher profit, credit growth was low but recoveries was strong, FMCG, paints, chemical and cement companies saw margin pressure.IT earning was almost in line with the estimate. Going On forward P/E basis nifty is trading at 21 times which is at a premium of 15% to long term average. Expert fells this strong earning is going to continue because of lower base and strong demand uptick .Banks have cleaned up there balance sheet and are now ready for next growth cycle, telecom, paints, cement and FMCG companies are all raising prices to cope up with their raw material cost. It is expected earning are going to be strong going forward also which will drive next phase of bull market.

2. Uptick in Realty Sector: Realty sector has a very strong multiplier effect on the whole economy as Indian realty sector was in doldrums for last 12 years India was not able to grow at its capacity, but in 2021 this sector has made a comeback which can lift many boats as there as many connected sectors from tiles, metals, housing finance company, power, and many other.

3. Easy Money: Morgan Stanley Ruchir Sharma said around 20% of the total dollar in circulation are printed in 2020 alone, so there is so much liquidity in the world which has also helped in inflating asset prices, it is said that around 5 trillion dollar still fetch negative interest rate so this money is going to risky asset like equity. Around 900 billion dollar has come into Emerging market this year which is more than the total money came in last 20 years. This trend is expected to continue as money printing is still on and lowering the size of the central bank is still long way to go.

4. India’s growth rate: India is expected to grow consistently at 8% every year seeing its young population, startup culture and the government initiative of PLI scheme which are going to be growth drivers of India, FDI inflow is very strong in India and it is expected to continue.

5. Midcap and Smallcap Earning: We have to understand that mid and small cap are underperforming from 2018 it was the nifty bluechip companies which was supporting market, smallcap index has given return of just 5% CAGR from 2008 which is half the CAGR of 10% which it was giving before that, so as earning comeback with growth in economy there will be huge return in this space.

6. Strong IIP and Economic Data: IIP and other Economic data are consistently showing growth since the start of the year. Electricity and core sector are showing sign of revival. GST collection has been constantly above 1.20 lakhs core

7. Deleveraging by Corporate: Balance sheet by corporate India are now growth ready as most the leverage player are out of the system and most of them are future ready for capacity expansion.

8. Government Infra Push: Government in India are spending heavily on Infra which will help many infra related companies.

9. Bad Bank: Government has form Bad bank to help private and PSU bank to give their bad loan to this bank so that they can focus on growth in the country.

10. PLI scheme: This scheme is to provide benefit to manufacturing company. More a company produces more it will get the benefit.

11. Retail Flow: Retail flow has been very strong in India and in this quarter only India has opened around 1 crore demat account. This retail flow can provide stability to the market when FII are selling.

12. Wage Hike Across the Board: Wage Hike in IT and services sector is very strong which is providing support to consumption and this will increase per capita income of the company.

13. Freight corridor: This corridor is going to give competitive advantage to exports as it will lower transport cost.

NEGATIVE FACTOR:

1. Inflation: As economy picks up inflation is also picking up which can lead to panic step from central banks in winding down their QE which can led to panic in world market.

2. Premium Valuation: All the leading brokerage firm of the world are downgrading India because they fell India has gone up too early and too fast and they have cut down their rating of Indian market. India is trading at 21 times forward earning and on P/B it’s 3.2 times which is at premium of 30% when compared to long term average. So in short term valuation needs to correct.

3. Federal Reserve Stance: Majority of the rally is because of low cost of capital in India as US Fed was very supportive to growth and have kept interest rate very low but with inflation inching up because of crude, supply chain issue this may led federal Reserve to take urgent step to curtail inflation and they are already signaling of faster tapering.

4. New Covid Variant: If new variant turn out be more infectious and can surpass vaccine immunity this will eventually led to lockdown which can turn all growth forcast and can be a big negative for the market.

5. IPO Frenzy: It is seen that to many IPO generally mark top of the market as they suck up liquidity, in India also there are many IPO that are coming up which is taking away liquidity from retail participant and FII are also selling in secondary market so that they can participate in primary market.it is estimated that 9.7 billion dollar has been raised in IPO market.

6. Rising Crude: Rise in crude price is always negative as India is very much dependent on crude, so rise in crude can impact India’s growth.

7. Current Account Deficit: In last two month India is having current account Deficit of $20 billion so if this continues this will put pressure on the Rupee which is always negative for market.

8. Dollar Index: Dollar Index has climbed above 96 mark which is negative for emerging market. As there is talk of faster tapering by fed this will means money flowing back to US.

OUTLOOK:

Indian Market is one of the brightest star when it comes to world Market as GDP and macro factors shows there is
drastic improvement on the ground, as our corporate earning is bottoming out, GST collection is robust, Individual
and government Balance sheet is in good shape and finally the real esate and capex cycle is showing sign of early
revival. Nifty earning on trailing basis may look expensive but on forward basis it still look reasonable. So for the long term prospectus Investor should look these type so sharp fall as an opportunity, to buy for long term
prospectus. We expect market to see a time wise correction and volatility to continue due to fed decision and
recent covid fear but we remain constructive for the long term and fells these are great Buying opportunity.