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We are in a new world; But, Bottom Line is – India is in bull market

Nov 09, 2016(18:43)
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While everyone was bracing up for the US presidential elections on 8 Nov 2016 evening, major news broke out in the form of the Indian Prime Minister’s stunning decision of nullifying Rs 500 and Rs 1000 notes, to take the black money problem head on.

In independent Indias history, this is probably one of the most powerful and sensational decisions. It takes enormous guts to execute it, and Prime Minister Narendra Modi has displayed that. While the decision is excellent, the real success of this monumental decision lies in maintaining secrecy about it till the last moment. This move is clearly part of a broader well-calibrated agenda of the battle against black money, and is a clear follow-up to voluntary IDS (Income Disclosure Scheme) launched by the government. This move of nullifying Rs 500 and Rs 1000 notes makes it forceful income disclosure. The old Rs 500 and Rs 1000 notes will have to be deposited / exchanged with banks, which naturally brings even unaccounted Rs 500 and Rs 1000 notes into the regulator’s radar.

The Prime Minister clearly mentioned during his speech that there may be some inconvenience for about 15 days in the execution of such a monumental decision. However, the long-term benefits of this move will far exceed a little discomfort for 15 days. The global investors will surely upgrade their Indian investment outlook, as this move will elevate perceptions regarding the transparency standards of the Indian economy.

While India is yet to come to terms fully with the Prime Minister’s announcement by morning of 9 Nov 2016, another major global big event that the global markets have been closely watching is the US election result. This US election has been a high-decibel event with colourful contradiction of views, besides regular political rhetoric discourse. Lots of views, lots of arguments, hilarious articulation, but finally, it comes down to Who Will Trump Whom?

Against most of the poll expectations, almost unthinkable 18 months back, Mr Donald Trump has been triumphant and has become the 45th President of the United States. The equities, commodities, currencies and bond markets across the world have seen extraordinary swings and volatility. While it is an extremely important political event on the global front, the natural question on the minds of Indian market participants is what kind of impact it will have on Indian markets?

Irrespective of the US election result, we feel India will continue to have a bullish market. While the US presidential election as a political event can cause short-term volatility and fluctuation in Indian markets, we strongly believe Indian market rally is ultimately a function of strong domestic consumption wave, demographic dividend, tax reforms and well-positioned Indian macros. India is experiencing a virtuous cycle of demographic dividend, higher disposable incomes, and hence a strong domestic consumption wave. Further to that, stable political conditions, benign inflation, strong GDP growth and an accommodative interest rate scenario are some of the factors at macro level even as global investors continue to maintain their over-weight view on Indian markets. In addition to this positive framework, the added confidence that GST reform is moving in the right direction is giving additional confidence to Indian investors. Irrespective of US election outcome, we strongly feel this virtuous cycle will remain in play, and to that extent, the broader Indian market trends should remain robust.

For long-term investors who have positioned themselves for playing multi-year bull market of India, the 2016 US election may prove to be a non-event. They should focus on the factors such as earnings recovery, business sustainability, consumption robustness and economic revival. On all these factors, we feel recovery and revival in India are well in place.

Conclusion

To conclude, the last 18 hours were extremely dramatic for markets with major news; one locally and another globally. However, we feel that Indian markets are in the middle of a multi-year bull run. Events may come and go, but the bull-run is expected to continue. Events such as Brexit, Border tensions, US elections had only short-term volatility on the markets; but the long-term bullish trend has remained intact.

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