The stock market seems to be playing spoiltsport for a while, it has delivered (-) 3% year-to-date and (-) 10% over the last 1 year. Despite this I continue to hold on to my optimism and stick to my stance that the markets will improve in the latter half of this year. However, certain key events in the near future may determine the trend in the short term.
Income of India’s 833 million mostly rural population is a huge market for our economy. Farming contributes just 15% of India’s $2 trillion economy, but half of India’s 1.25 billion people rely on a farm-related income. Without rural wealth, the economy cannot thrive. After two years of consecutive drought, monsoon has never been prayed for as much as now. July monsoon is as critical for crops as Rahul Gandhi is to stand-up comedy and with the subsiding El-Nino (associated with dry monsoon spells) phenomenon, the met departments are forecasting an above average monsoon. This will certainly boost rural income over time and kick-start the growth engine of our economy.
Our RBI governor, Dr. Raghuram Rajan, known as the Sachin Tendulkar of our financial system is nearing his term in September and despite baseless criticism his re-election is critical. His opposition like Mr. Subramanian Swamy is oblivious of the fact that it was Dr. Rajan who crusaded against crony capitalism and corruption in the banking system. It was him who is putting an end to the hand-in-glove relationship which the promoters shared with bankers that bloated their bad debts to astronomical levels. Dr. Rajan was the man who put a deadline of March 2017 to ensure banks open their Pandora’s Box of bad debts which like skeletons are popping out. His fame in the global banking arena is evident, he was awarded the central banker of the year (Global and Asia pacific) for 2016 by the Financial Times monthly publication “The Banker”. Despite higher interest rates for instance, data from ministry of corporate affairs show that small business are rather faring better than large ones. FII’s and corporate honchos have applauded his effort for safeguarding our currency and our banking system during tough times. His re-election will bring stability and assurance that the government is in sync with the economic growth agenda. It’s likely that sense will prevail in politics and he will be re-elected by our PM.
In September $30 Billion worth of FCNR (NRI Foreign currency deposit) will mature and this could make the market jitter a bit. China’s debt is still a ticking time bomb and no one knows what is behind the curtain thanks to their lack of transparency. And finally the joker in the pack would be if Donald Trump wins the presidential election.
Having said this, with the likelihood of a good monsoon, re-election of Dr. Rajan and pro-reform measures already taken by the government, the market should react positively and what bigger incentive than growing faster than China. We are currently the fastest growing economy at over 7% GDP growth rate which is 4 times higher than US and 5 times Europe’s growth rate. So the answer to where the money will flow is India. Hence, the long term trend continues to be bullish and the elephant will dance.