Indian equity market is almost near its all time high (intra-day). FII’s have pumped it’s highest ever flow in excess of $25 billion this year. They have lots of money and limited opportunity. Their central bank and government is giving them even more money. Their alternate opportunities are at meager returns. They are all coming to India as it is growing at eight per cent and is expected to grow at that rate for many years to come.
It is always difficult to predict markets. Especially in the short term. In 2007 beginning I did not predict that Sensex will touch 20,000 by year end. However, there was no doubt that the same can happen by 2010. Sensex touched 20,000 by end of 2007 against all expectation and is touching 20,000 back again in line with most expectations then. Investors have to be aware of this fallacy of prediction.
The demographic advantage, availability of capital, entrepreneurship of people, virtuous cycle of demand being far ahead of supply are all ensuring that Indian Car is good for long distance drive at a great speed.
What is critical is for the driver to handle turns on the Road by slowing down when necessary. India today is enjoying high capital flows which is funding its large current account deficit. This large deficit can come down dramatically if government can incentivise savings to move away from gold and ensure that Indian students get quality education in India rather than abroad. India is benefitting from Wealth effect through appreciation of land, gold and equity prices. If government can raise productivity across economy through better governance, this wealth effect can be sustained and not get converted into bubble. India is having more cars but less Roads, more phones but less power, more human beings but less skills, more Houses but at a cost which cannot be afforded by most, more goods and services but at a price rise which is very high. If the government can augment domestic savings with foreign flows and build more houses, roads, power plants at a speed and a cost which is in line with peers this growth can be sustained for many years and meet all the expectations of Investor’s and may even deliver more. It is critical for the policy makers to maintain policy which sustains long term growth even at the cost of some pain in the short term. Our policy makers especially when given independence of decision making has delivered fantastic results. They need to be ready for many years of steering Indian economy through various ups and downs which global economy is going to show it to us.
Investors have to learn the art of investing. Even the god cannot deliver Mango before 12 years. Don’t expect markets to deliver returns prematurely.
The sensex is up almost 200 times in last 30 years and about 20 times in last 20 years and about five times in last 10 years. This all happened during the era when telephones took 10 years to come, rationing shop lines were long, Aeroplane were to be seen and not to be travelled into and TV meant black and white shows. Imagine what will happen in next few decades when mobile gets delivered instantly, Department stores makes choice difficult through plenty of options, Air travel is common and TV means colour and too many channels. Be a part of it. Don’t be a spectator. Be an Investor.
The author is Deputy Managing Director, ICICI Prudential Asset Management Company Limited
