Has the "Great Indian Bull Run" started?

 Hello readers,

Victor Hugo - the most famous French writer once said" All the forces in the world are not so powerful as an idea whose time has come".  

"Indian economy growth story" is the idea I am referring here.  I continue to be a big and unabashed fan of the long and medium term potential of Indian economy to beat all the other nations hands down in the coming few decades , despite the limitations of our democracy and our political leadership and bureaucracy. 

I would refer you back to a blog I had written on 25th June 2011 on the topic "Biggest growth story of the 21st century - Indian economy". Will also refer you to my blog dated 8th Dec 2012 and 2nd Oct 2012

I had forecasted in my earlier blogs dated 1^st January 2013 and 26^th Feb 2013 that Sensex might touch 23000-24000 by the end of 2013. With 6-7 weeks to go for 2013 end, we may still reach  23000 if some domestic and international events help us . However, there is a higher probability that we may miss it by a few thousand points. But I am reasonably sure that we will reach the predicted levels by end of FY14 (March 2014). Recently, Goldman sachs and Nomura have also predicted the same levels by end of FY14. While Goldman has predicted Nifty to touch 6900(Sensex equivalent of 23000), Nomura has predicted Sensex to reach 22000 by end of FY14.

Why am I so optimistic?

Well , there are three solid reasons…

New RBI Governor – At last , we got an innovative professional sitting at RBI(unlike his predecessors from bureaucratic background) - Raghuram Rajan- who knows what it takes to strike the correct balance between inflation and growth/liquidity  equation. Through his innovative actions, he has played a significant role in arresting the Rupee decline and eased the short term liquidity situation also. Am sure that he is going to work very closely with finance ministry (Chidambaram) to turn around the economy and currency situation. His body language is much more confident and positive and intends to soothe the investors.

Elections in May 2014 - UPA-II government knows better than us that it has to deliver on growth to generate more employment and more money in the hands of Indian consumers to get the crucial vote of middle class, urban young class and everybody else in the 2014 elections. With NAMO(Narendra Mody) factor coming in, the pressure on the govt. to deliver on economy growth and inflation will go up . It also knows that credit agencies will put India in junk rating if it doesn't reduce the fiscal deficit. Hence, it should be able to pull the political will to carry out these measures and reforms. History has been the biggest witness that our netas and babus have delivered their best when they have brought the country to a crisis situation (like early 90s when India was in a big financial crisis with Dr. Manmohan Singh as the finance minister). In fact. It has already delivered to a some extent in last few months on CAD (Current account deficit projections have reduced from $90 Billion to $56 Billion now), legislative reforms (land acquisition bill, Insurance bill, FDI retail & food security bills), executive decisions(FDI reforms and clearing investment projects worth 3 lac crores through CCI-Cabinet committee of Investment) .

Greenshoots appearing up domestically and globally– Apart from the much better CAD, Indian exports went up by 13% in September and Core industry growth in Sep went up by 8%. The strong monsoon is predicted to cool off the food inflation pressures and also ensure record harvest which in turn will improve the rural demand.. US and China economy are showing clear signs of recovery. The newly nominated future US Fed governor (Janet Yellen)has clearly said that Quantitative Easing (QE) tapering won’t be done hurriedly till we see enough signs of US recovery.

The only party spoilers in short term  could be any surprise or unpredictable or negative result in Indian elections like hung parliament or lame duck government of coalitions with no clear majority etc. The other party spoiler could be US congress again not reaching a consensus on US govt. debt ceiling in March 2014. While the market could go through ups and downs due to election uncertainties and other factors, the long term trend in 2014 and 2015 should  be up and nothing else.

In fact, from a long term perspective, I would have no hesitation in declaring that the Big Indian Bull run has just started . While we may see some wild variations (dips and rises) in 2014 due to uncertainties related to election results , the bull will continue to show a significantly positive trend over the next few years. Bull is un-stoppable. In fact , there is a significant probability that Sensex would touch >30,000 by end of 2016, unless we have unpredictable black swan events like Euro sovereign debt crisis or double dip US recession , Currency crisis etc. The chances of such Black swan events are low as of now.

Implications for the retail investors

Though the market has jumped up few thousand points to >20000(Sensex) and has crossed the peak (>21500)a couple of times in the recent few months , we still have lots of steam left in few in  some blue chip companies in few sectors . Hence, we need to adopt a stock specific approach (bottoms up approach) now in few sectors.

My favorite sectors where I will pick up the best stocks/ businesses for investment are Banking and finance and few interest sensitive/ cyclical sectors like capital goods/power, auto and energy. This is because these sectors, especially banking and finance have been beaten to death by the over-reactive market. The concerns like bad debt(NPA), rising inflation etc have been dis-proportionately over-blown by the short sighted and manic depressive market (as Benjamin Graham , Guru of Warren Buffet would say) when even the sound and prudent companies/ banks with strong balance sheets and strong fundamentals also have been painted by the same dirty and pessimistic  brush as the other weakling companies/ banks.

I continue to be bullish on most of the stocks/ businesses I had declared as my favorite picks in 2012 and 2013 beginning. The key among them(Top 10) where I have  put and am putting my money now are ICICI bank, Axis bank, Bank of Baroda, LIC Housing Finance, IDFC , REC, Power Grid, Coal India, L&T, Mahindra & Mahindra, (Best businesses in Banking & Finance/ NBFC, Power, Automobile, capital goods and energy).

All these players are dominant and big players in their sectors with consistent growth and profit performance, robust business models, well managed companies by competent management teams & strong balance sheets with sustainable competitive advantages in their areas. And they are available at good prices now with respect to their intrinsic value or historic PE, providing a great "margin of safety" for the value investors. We should invest in these businesses at every dip(as the market would show a lot of variations in next few months till we get a stable new Govt at the center after elections) and sit tight on them for few years(3-5 years of investment horizon) to realize the true growth potential of these businesses. If you don’t have that investment horizon, then you are wasting your time on my blog.

 Happy investing,

Cheers

Amar