The Growth Triggers

There was a time when the lack of everything in India was a problem, it was a symptom of our less-developed state. But this lack of everythi...

There was a time when the lack of everything in India was a problem, it was a symptom of our less-developed state. But this lack of everything, be it infrastructure, phones, power, personal transport, white goods, insurance, funds, packaged food or wine, is no longer a cause of dismay, it is a symptom of opportunity 8211; there is so much more growth to be unlocked in India today.

The difference between the two approaches is that the traffic jam that India was in, has begun to unravel and though the movement may be slow, at least we are moving. And that gives hope. The point just before the Budget 2005-06 is that the discussion is no longer about the feasibility of reforms, but about when the second generation reforms will begin. When will the bugbears of labour, taxes and fiscal deficit be sorted out. Economic growth has a direct impact on the stock markets, as companies make profits, the valuations on the stock markets rise and people make money in equity.

As we begin the countdown to Budget 2005-06, we ask the question: what will it take to keep the markets happy over the next five years? Will the returns on equity continue and how much of an impact will the budget make on this stock market party?

We asked some market insiders what they thought and got answers that range from saying that markets will do well if Indians keep the faith to a pure number-based analysis that looks at corporate growth, inflation and oil prices. Keep reading this space for more pre-budget stories and for decoding the budget to make your money grow.

Hardworking Economy
Nilesh Shah, CIO, Prudential ICICI AMC
The arbitrage of human intelligence between India and the other nations could be of prime significance. The opportunities that India throws up are immense in the human resource segment considering that we can offer qualified professionals at extremely good costs, compared to the rest of the world. It is a trend which is across the sectors and professions. We have proved that we are hard working Indians.

The easy availability of fast loans 8211; cars, home, investments 8211; is a growing influence. The changing lifestyle and the growing disposable income has triggered a movement where a person is now in a position to buy a property immediately after she graduates. This could result as a trigger for a consumption led growth. Most importantly, based on the above two fundamentals is the faith that the Indians need to invest in India. If Indians stay invested in the Indian markets, then there is no reason why the markets should not give 20 per cent returns on equity over the next five years.

Growing Domestic Market
Gurunath Mudlapur, Head-Research, Khandwala Securities
Market performance is always anticipative in nature, and it is even more true in terms of the peak. The markets across the world 8211; be it Japan, Hong Kong or USA 8211; have always peaked before the economy peaks. This is the basic philosophy of the capital market, hence going by the present peak in the markets, there is every reason to believe that the economy is going to be in its peak in the future. For the long-term period of five to 15 years, it directly depends on the economic performance of the country across sectors. And most importantly how structurally competitive we are in terms of performance. It is also important to make our financial markets open for global investments. More inflow, would mean better growth. India can average a growth rate of 20 per cent, if the consumption pattern remains the same. We are a domestic economy with a large consumer base. The only red flags that could slow down this growth is the red tapism from the government. The corruption at the ground level also creates hurdles. So even if you have conducive FDI policies on one hand, investors will think twice before investing.

Changing Demographics
Ajay Bagga, CEO, Kotak AMC
The stock market has been giving an annual growth rate of 18 per cent CAGR for the last 25 years. Comparatively, gilt market gave a return of 10.5 per cent and gold returning 7 per cent. Taking this yard stick, it is fair to say that the market is bound to outperform in the future, say even the next 30 years. The 8216;happy triggers8217; would be good corporate earnings, considering we will be seeing many consolidations. Stiff competition resulting in better performance, coupled with management autonomy would shift to the private sector is another factor. Demographics is another area where the percentage and age group of the youth entering the work pool will lead to a better performance card. Domestic consumption would be the highlight with retail sector driving the growth front. Also, taking a direct market relation 8211; the order of investment preference will shift to pension funds followed by insurance, mutual funds and direct equity. The increased market in terms of new avenues and increased partnership will only result in better performance. One can also include the appreciation of Rupee to Rs 36 to a dollar in the next five years which will strengthen the market. The only case to worry then, would be failing monsoons and bad governance.

Robust Corporate Earnings
Motilal Oswal, Chairman, Motilal Oswal Securities
The corporate earnings will be the driver this year and it looks promising, with more than 25 per cent growth expected. The other factor could be the 7-8 per cent GDP growth rate since the economy is doing well. If there are any fluctuations, it could be due to rise in interest rates and inflation. Any major fluctuation can also lead to a disturbance to the Indian markets.

Interviews by Smita Nair