What Dalal Street can expect on reforms and FII inflows after BJP’s win
BJP's victory in UP is likely to validate the conviction of many FPIs as well as local institutional investors. These investors have been betting on a directionally positive reforms process even when earnings growth was muted. ETIG gives a snapshot of what market participants believe could be India's relative performance among emerging markets, likely fund flows, and the preferred sectors.
Indian equities' relative performance vs EM
India's outperformance is likely to continue in the near-term
Secular reform story will help Indian equities to maintain the safe haven tag among the EMs
Elevated price-earnings (PE) may sustain for Indian equities
Predictability and stability of the government may help in sustaining high PE
Indian equities are trading 17 times of FY18 projected earnings -one standard deviation away from the 10-year average
Institutional fund flow into Indian equities
FPIs have invested nearly $2.5 billion in Feb and March
FPI investment, particularly from long-only funds, to continue
India has lately seen gradual inflow from global pension funds who have entered Indian market for the first time
Subdued return on real estate, disincentives to hold cash may drive more allocation into financial savings; thus inflows into domestic MFs to continue
Domestic MFs have been witness to inflows of more than $1 billion every month since October 2016
Shift to quality stocks from cyclicals
Investors may again focus on quality stocks with better earnings visibility, relook at FMCG and consumer discretionary stocks to ride further upside
Interest on commodity stocks may wane as these have already surged
Low-PE commodity stocks have outperformed high PE quality stocks since June 2016. This trend may reverse
Rural focus stocks may be once again on investor radar
Benefits of higher allocation to rural and social schemes paid rich dividends to the government. So, government's rural focus may continue
A possible farm loan waiver announced during UP election campaign may boost rural income
Also, rural income may rise due to the 7% hike in minimum support price of wheat the highest in last three years
Thus, investors may increase bets on agriculture-dependent sectors such as two-wheelers, tractors, agrochemicals and select FMCG
GST beneficiary stocks may hog the limelight
An early GST rollout a distinct possibility
Businesses such as dairy, jewellery, ceramics, apparels, air-coolers, retail, and plywood (with a high presence of the unorganised players) will benefit from GST
The shift of businesses from unorganised to organised sector will help companies like Titan, TBZ, Parag Milk Food, Prabhat Dairy
Namami Gange & irrigation projects may see renewed focus
Praj Industries, VA Tech Wabag, ITD Cementation, Pratibha Industries and KEC International which are in the business of water purification -likely to benefit
Indian equities' relative performance vs EM
India's outperformance is likely to continue in the near-term
Secular reform story will help Indian equities to maintain the safe haven tag among the EMs
Elevated price-earnings (PE) may sustain for Indian equities
Predictability and stability of the government may help in sustaining high PE
Indian equities are trading 17 times of FY18 projected earnings -one standard deviation away from the 10-year average
Institutional fund flow into Indian equities
FPIs have invested nearly $2.5 billion in Feb and March
FPI investment, particularly from long-only funds, to continue
India has lately seen gradual inflow from global pension funds who have entered Indian market for the first time
Subdued return on real estate, disincentives to hold cash may drive more allocation into financial savings; thus inflows into domestic MFs to continue
Domestic MFs have been witness to inflows of more than $1 billion every month since October 2016
Shift to quality stocks from cyclicals
Investors may again focus on quality stocks with better earnings visibility, relook at FMCG and consumer discretionary stocks to ride further upside
Interest on commodity stocks may wane as these have already surged
Low-PE commodity stocks have outperformed high PE quality stocks since June 2016. This trend may reverse
Rural focus stocks may be once again on investor radar
Benefits of higher allocation to rural and social schemes paid rich dividends to the government. So, government's rural focus may continue
A possible farm loan waiver announced during UP election campaign may boost rural income
Also, rural income may rise due to the 7% hike in minimum support price of wheat the highest in last three years
Thus, investors may increase bets on agriculture-dependent sectors such as two-wheelers, tractors, agrochemicals and select FMCG
GST beneficiary stocks may hog the limelight
An early GST rollout a distinct possibility
Businesses such as dairy, jewellery, ceramics, apparels, air-coolers, retail, and plywood (with a high presence of the unorganised players) will benefit from GST
The shift of businesses from unorganised to organised sector will help companies like Titan, TBZ, Parag Milk Food, Prabhat Dairy
Namami Gange & irrigation projects may see renewed focus
Praj Industries, VA Tech Wabag, ITD Cementation, Pratibha Industries and KEC International which are in the business of water purification -likely to benefit
