In October 2003, the Resurgent India Bonds matured. And approximately $2 Billion USD was returned to investors. These were investors who invested in these bonds to bail India out of a crisis when sanctions were imposed post Pokhran-2 nuclear tests.
Obviously, these investors who were ready to put in money when India was in trouble, were more than happy to keep that money in India, predominantly in equities. And from October 2003 to April 2004, there was a stunning rally in Indian equities, with markets almost doubling in 6 months!
The situation was very much like today - there were a lot of announcements, like Golden Quadrilateral, etc - but nothing concrete had happened in terms of actual progress.
In 2013, July and August, there were severe gyrations in the FX Markets, with rupee falling to 68/$ before recovering. To shore up the Rupee, the RBI relaxed restrictions on FCNR deposits, and raised a whopping $30 Billion in deposits.
These deposits were for 3 year maturity - and will be maturing over the next couple of months. And in very much the same way as 1998, these people also have shown the willingness to put in money in 2013 - when the situation in India was probably the worst in a long time.
Do you think these people will take their money back and park it overseas?
Or do you think they will keep it in India, recognizing that there is a lot of reforms, lot of real action happening in India?
If they are going to invest this money in India, is it going into real estate, or bonds or stock market? Considering the circumstances, chances are high that the money will come to the stock markets.
And what do you think will happen to the stock market when this money comes in?
Today, people feel valuations are high - but the reality is that valuations in India are extremely low. Earnings are depressed because of a lot of factors - banks because of bad loans, pharma companies because of US FDA issues, commodities because of prices being too low, Reliance because of huge investment that hasnt yet started paying off. Even companies that are at decent valuations - like cement and autos will see huge earnings boosts from GST. IT companies are trading at the lowest valuations they have ever traded, but will soon see margin upsides from investments in automation. Today Brexit feels like a dampener for IT, but there will be many system changes necessitated because of Brexit - which will only be known when the final structure of the relationship between Britain and the EU is clarified.
On top of this, there is the consumption pickup because of monsoons and seventh pay commission.The benefits from reforms, lowering of interest rates and improvements in ease of doing business will kick in. Corporate tax decreases that have already been announced but not yet implemented in full will kick in, and that will boost PAT in a big way.
Almost all these factors are already in place, and it is just a matter of time before the impact is seen in earnings. Within the next 12-18 months, we could see a quantum jump in earnings - even a potential doubling of Nifty earnings cannot be ruled out.
Indian corporates are coming off a long and difficult 8 years. They have shed a lot of fat, and tightened the belt. When the environment changes, the impact to bottom line is going to be immediate.
Obviously, these investors who were ready to put in money when India was in trouble, were more than happy to keep that money in India, predominantly in equities. And from October 2003 to April 2004, there was a stunning rally in Indian equities, with markets almost doubling in 6 months!
The situation was very much like today - there were a lot of announcements, like Golden Quadrilateral, etc - but nothing concrete had happened in terms of actual progress.
In 2013, July and August, there were severe gyrations in the FX Markets, with rupee falling to 68/$ before recovering. To shore up the Rupee, the RBI relaxed restrictions on FCNR deposits, and raised a whopping $30 Billion in deposits.
These deposits were for 3 year maturity - and will be maturing over the next couple of months. And in very much the same way as 1998, these people also have shown the willingness to put in money in 2013 - when the situation in India was probably the worst in a long time.
Do you think these people will take their money back and park it overseas?
Or do you think they will keep it in India, recognizing that there is a lot of reforms, lot of real action happening in India?
If they are going to invest this money in India, is it going into real estate, or bonds or stock market? Considering the circumstances, chances are high that the money will come to the stock markets.
And what do you think will happen to the stock market when this money comes in?
Today, people feel valuations are high - but the reality is that valuations in India are extremely low. Earnings are depressed because of a lot of factors - banks because of bad loans, pharma companies because of US FDA issues, commodities because of prices being too low, Reliance because of huge investment that hasnt yet started paying off. Even companies that are at decent valuations - like cement and autos will see huge earnings boosts from GST. IT companies are trading at the lowest valuations they have ever traded, but will soon see margin upsides from investments in automation. Today Brexit feels like a dampener for IT, but there will be many system changes necessitated because of Brexit - which will only be known when the final structure of the relationship between Britain and the EU is clarified.
On top of this, there is the consumption pickup because of monsoons and seventh pay commission.The benefits from reforms, lowering of interest rates and improvements in ease of doing business will kick in. Corporate tax decreases that have already been announced but not yet implemented in full will kick in, and that will boost PAT in a big way.
Almost all these factors are already in place, and it is just a matter of time before the impact is seen in earnings. Within the next 12-18 months, we could see a quantum jump in earnings - even a potential doubling of Nifty earnings cannot be ruled out.
Indian corporates are coming off a long and difficult 8 years. They have shed a lot of fat, and tightened the belt. When the environment changes, the impact to bottom line is going to be immediate.
Coming soon - mega bull market in India!!
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