India Is Ready For An ‘Impending Economic Boom’ - Shares Kunal Ambasta, Co-founder, COO & CIO Of Liquide

2022 was indeed a volatile year for the Indian stock markets owing to global concerns such as rising inflation like soaring inflation, interest rate hikes, Covid cases and the never-ending Russia-Ukraine tussle. However, the resilience that the Indian market has shown during the global shocks in comparison with other world markets is impressive and astonishing.

Indian equities outperformed their emerging market (EM) counterparts by 23 per cent in 2022. The MSCI India Index, a barometer used to evaluate the performance of equities, has outpaced the MSCI World index by 20 per cent in 2022. 

Kunal Ambasta, Co-founder, COO & CIO of Liquide, shares, “One big reason behind this outperformance is the strong domestic inflow. Domestic mutual funds invested nearly Rs 2 lakh crore in equities in 2022, while foreign portfolio investors (FPIs) have sold equities worth Rs 1.2 lakh crore. Retail participation has been equally strong. The SIP book reached a record high of Rs 13,306 crore in November 2022. This brings us to another interesting statistic. The number of Demat accounts was up 41 per cent to 10.4 crores in October 2022 vs 7.4 crores in October last year. Although the pace is slower than in the previous two years, it is important to highlight that these new investors are uninitiated and will drive India's equities story in the coming decade. And this is why it is critical for them to get off to a good start.”

What lies ahead?
Morgan Stanley believes India is ready for an ‘impending economic boom’ and will become the world’s third-largest economy by 2027, with its GDP more than doubling from the current USD 3.4 tn to USD 8.5 tn over the next 10 years. 

Kunal Ambasta further added, “We see another 12-15 per cent upside in the next 12 months on the back of strong domestic macros and healthy earnings growth by India Inc. While pessimists may stay away, the optimists must buy at every fall as the froth in the broader markets seems to have dissipated. We’ve identified 3 distinct themes, which we believe will become the Winners of 2023.”

1. Consumption
India is on the cusp of an economic boom, which is likely to be driven by robust domestic consumption. With a consumption share to GDP at ~60 per cent, it is natural that India will remain a consumption-driven economy. Food being the largest contributor in this consumption basket accounting for ~30-32 per cent, the consumption mix suggests that an average Indian consumer spends more on necessities and less on comfort and luxury. Considering these factors, FMCG remains our top pick for 2023. 

In a year that saw most businesses struggle amid soaring inflation and spiralling commodity prices, most FMCG majors weathered the storm and managed to report growth in sales and profits. The Nifty FMCG sectoral index gained over 22 per cent during the year. Given the recovery in rural consumption and cooling-off inflation, we expect 2023 to bode well for the sector. 

Also, the recent fall in crude prices bodes well for FMCG companies as crude oil derivatives form a big chunk of their raw material cost. Some other beneficiaries include Paints, Aviation and Tyres. 

2. Quality 
The re-emergence of the pandemic has aroused renewed interest in the ‘China +1’ strategy. A UBS survey suggests that 20-30 per cent of manufacturing will move out from China and India is the next best candidate owing to its strategic location, large domestic market, skilled and low-cost labour, and favourable government policies.

No one knows what the full impact of the pandemic will be or when it will end. The entire playing field has changed, and therefore, the question is about sustenance and being tactical. We believe that this new decade is set to give birth to a New India, one with only quality companies at the forefront. We suggest investors to not try and time the bottom of the market and continue spreading their investments in quality stocks over the next three months. 

3. Small-caps
If you are bullish on India’s growth story and want to generate Alpha in the long run, Small-Caps is the best place to be. The Small-Cap index is now down over -20 per cent from its recent peak. Historically, Small-Cap funds have always outperformed the benchmarks, especially during phases of economic recovery or growth. But remember, Small-Caps are volatile and associated with high risk. Instead of investing blindly in someone's tips, take professional advice and invest in well-researched stocks.

Word of caution
While we are bullish on the Indian markets in the long run, the near-term outlook remains uncertain as Covid has re-emerged in some important economies of the world. While there’s no harm in being cautious, there’s no reason to fret. We’ve been in this situation before, and we know these phases will pass. Also, keeping a watchful eye on INR strength against USD will be a key to success when choosing stocks and themes

But if you’re not a full-time seasoned investor, the severe market volatility that we saw in 2020 can confuse you as to when to buy and sell investments - from breaching an all-time high in January 2020 to falling more than 30 per cent in just 2 months in March 2020, to a slow and steady recovery in the remaining year. It is important to be stock-specific in such markets, and a professional advisor can help you weather this market volatility by churning your portfolio at regular intervals. Bear market phases are the best time to exit duds and shift to companies with better growth prospects.

To sum it all up, we believe this decade belongs to India, and the strong performance of the market is a positive sign for the economy, and it is likely to continue to support economic growth in the coming years. Winds are blowing clearly in India's favour despite all odds. A gentle reminder for the investors: Ignore the temporary blips and focus on winning the decade, not just the day!

- Article by Kunal Ambasta, Co-founder, COO  & CIO of Liquide