Diwali is a festival of lights and always ignites hope of a brighter future. However, most of the retail investor portfolios haven’t seen a shimmering light for a long time, though there are enough reasons to keep the flicker of hope alive in Samvat 2076.
Whenever we go back in history to identify defining moments, we normally tend to ignore the immediate consequences of such events and focus only on the long-term impact of the same. However, when you are in the midst of the aftermath, you are bound to get overwhelmed and affected. In addition to demonetisation and the impact of good and services tax (GST), the recent defining moment was the fall of the infallible IL&FS and the resulting trust deficit that engulfed the financial markets, leading to disastrous consequences.
Indian Investors, for the first time, realised that high rated safe debt paper can turn risky overnight. A clear distinction was carved out between those who were skating on thin ice and those who stood on a solid ground. We have been in the midst of this cleansing process, which resulted in a lot of co-lateral damage as every other player was considered a suspect.
The slowing consumption, growing unemployment, uncertainties arising out of geo-political issues got everybody cautious. Global news flow, too, did not bring any cheer. The logjam on Brexit and continued fracas on US-China trade dispute kept investors on tenterhooks. That apart, oil prices threatened to move up and the rupee weakened considerably. Despite a landslide victory for the incumbent Modi Government, markets did not sustain as economic issues were not accorded priority as expected.
We should appreciate that we currently witnessing a slowdown in the economy but it’s not a recession. India continues to grow at a slower rate and is expected to outperform most of the other economies. More importantly, the government now has recognised the problem and promises to be proactive. It is expected that they may announce a slew of measures to attract global companies to set up their manufacturing base in India. Along with the recent corporate tax cut, the ease of doing business, especially for the global Investors, may be tweaked. There could be a special package for those moving out of China to head to India. This could restart the capex cycle along with providing the much needed employment.
Direct Tax Code (DTC) is expected to be announced soon. The tax rates for the middle class with income up to Rs 20 lakh may be lowered in line with corporate taxes, thus providing more cash in their hands. However, the tax rates for the super-rich are likely to be high. Vehicle scrappage policy, which is in the works, could be announced before the year end, helping kick-start the demand for commercial vehicles.
Monsoon effect on rural India would be felt by November/December as realisation from Kharif crop materializes. The year could also see resolution of non-performing assets (NPAs) of banks, which have been in the process for a long time. The real estate market could get “re-sized” to address the real demand and price points leading to an uptick after a long time.
With most of the non-economic agenda such as abrogation of Article 370 and the expected resolution on Ayodhya going away, I expect that the government would focus on the economy to bring it back on track well before the 2024 elections.
A number of stocks may visually look cheap due to historic valuation, but there is a high probability that they may not last through the next bull-run. We should remember that a number of favourites of the ‘dot com boom’ have completely disappeared. The next bull-run would be based on strong business models, high standard of ethics, corporate governance and healthy balance-sheets. With a lot of dust settling down, Samvat 2076 will provide an opportunity to investors to dig up some hidden gems and ride the next rally.
Ambareesh Baliga is an independent market expert. Views expressed are his own