Dalal Street veterans were not only convinced that the central government's demonetisation move will be good for the stock market in 2017, but were upbeat about the overall outklook for the next five years.
Stock markets around the world are full of surprises. Sometimes, investors have been wary of the unpredictability and volatile nature of the markets - more so, after the stock market crash following the global financial meltdown in 2008. In fact, the corporate sector is yet to recover from the recent slowdown in the economy and over-leveraging. The year 2016 has almost remained stagnant in terms of Sensex returns. The year before was not any great either. The surprise demonetisation move has only added to the woes, dashing all hopes of a recovery that was expected in the economy after a prolonged period of slow earnings growth.
But this New Year, investors are mostly optimistic about the year ahead. They see positives in the demonetisation exercise, though the move has been criticised by several economists.
At the Business Today MindRush event, four Dalal Street veterans shared their wisdom on "How to survive the stock market in 2017". The advice: buy equity...buy now...and buy for the long term. "We are in the middle of a bull market which would probably last a few years. People who are patient will come out winners in the stockmarket," said Ridham Desai, Managing Director, Morgan Stanley. Rashesh Shah, Chairman and CEO of Edelweiss Group, agreed, and had a word of advice for the uninitiated: "The easiest thing for a retail investor is to invest through SIPs (systematic investment plans)." And, if you have the time and energy to search stocks, "go for B2C (business to consumer)", he added.
The market is also testing the robustness of the stockpickers' hypothesis. Rashesh Shah, who is also at the helm of affairs at the group's asset reconstruction company, said it is best to bet on existing projects on the ground. "No new capacity has come up after 2011/12. A good operating project in any industry will give better results. Any fresh capacity coming up in the current environment will be at a higher cost." He says events like demonetisation or global slowdown also test the robustness of businesses.
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, said a good monsoon, Pay Commission recommendations, and Goods and Services Tax will go a long way in improving sentiments. "Fund flows and sentiments are supporting stock prices. The only thing we are waiting for is the improvement in the fundamentals of companies."
Ridham Desai was upset with recent developments because he felt that the markets were in the midst of an earnings recovery before the demonetisation exercise. "That story would have built up nicely in the next two quarters, but because of demonetisation the earnings growth has been pushed back and, consequently, the stock prices have become cheaper." Nilesh Shah was, however, upbeat: "God forbid, if the actual recovery happens faster than one or two quarters, you will not be left with the opportunity to buy shares."
Rashesh Shah was also equally excited and was convinced that the move was just not an economic experiment, but a social experiment. "It is an experiment that has a lot of benefits with an increased flow of informal funds into the formal system. India is a work in progress. The process will only speed up with an exercise like demonetisation." Bharat Shah, Executive Director, ASK Group, said this country required some sort of a push. "And once we are into it, there is a strong adoptability by people." He also pointed out that there could be a shift from physical assets (gold, bullion, diamond, etc.) to financial assets because of demonetisation. Bharat Shah was confident that inflation would come down, but the impact of demonetisation on bringing down inflation would be temporary.
Rashesh Shah's prediction for 2017 was upbeat, but he believed that export-oriented companies will be under a lot of pressure because of the persisting global slowdown. "There will be some earnings pressure on these companies," he said.
But there are other dangers, too, for the broader market in 2017. "The biggest economy in the world is exiting the monetary easing policy," warned Desai. Also, oil prices have already shot up by 40 per cent from $36 a barrel a year ago to $52 a barrel. There is likely to be further increase in oil prices, which has the potential to fuel domestic inflation. In fact, the strengthening of the dollar coupled with higher interest rates in the US has the potential to weaken the rupee value further. There is yet another unknown risk from President-elect Donald Trump's policy initiatives. He has already labelled the H1B Visa programme as 'unfair' and, if implemented, it could impact Indian IT companies. Trump had also vowed to bring American jobs back from India in the run up to the Presidential elections. Now, it has to be seen how things pan out for Indian businesses in the US.
There are many challenges emanating from global markets, but the experts hoped that the market will come out of the shadow of the past two years.