Equity market upside may be significant in next 18-24 months

Tags: News
Indian equity market's upside is expected to be significant over the next 18-24 months, which in turn should continue to fuel investor appetite for domestic cyclicals, according to a report by Standard Chartered Bank.

"The equity market upside can be significant over the next 18-24 months, which in turn should continue to fuel investor appetite for domestic cyclicals, reversing the four-year sell down trend.

"This trend reversal could be powerful, with FII India holdings up by 480bps in the past three years. This suggests FIIs are already overweight India, but underweight domestic economy sensitive cyclical stocks," the Standard Chartered Bank said in its equity research report.

The Narendra Modi led BJP government's priorities and concomitant lift in the decision making environment have improved the chances of the removal of bottlenecks and a revival of the investment cycle, it said.

It will take time but a sharper-than-expected recovery in GDP growth to 8 per cent by FY17 is not inconceivable. In an optimistic scenario, moderation in inflation and rate cuts can add further fuel, making the recovery broad-based, the report said.

India needs swift policy action like increase the investment rate and reduce the incremental capital output ratio (ICOR) - a measure of productivity - to move towards the growth rate of 6-6.5 per cent in the near term and to remove bottlenecks.

Though the immediate focus would likely to be on improving productivity to the pre-global financial crisis levels, the stronger-than-expected electoral mandate has improved the chances of a quicker-than-expected recovery in the investment cycle as well, according to the report.

"We estimate that USD 80bn/year of external funding support is required to achieve 8 per cent GDP growth - the government's original growth forecast under the 12th Plan (FYP) for FY13-FY17.

"This is based on external debt/equity requirements for infrastructure and other sectors. Reducing political risks and a stable currency can make the requisite external funding support easier to attain, thus aiding the process of economic recovery," the report said.

EDITORIAL OF THE DAY

  • India’s political space acts as a safety valve for maverick politicians and frustrated electorate

    While it is easy to be cynical about Indian democracy and its ways, the fact is that the vast political space that the system provides for in this cou

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Taslima Nasreen

Bangladesh no country for atheists

It’s a matter of pride to be a freethinker, atheist ...

Purnendu Ghosh

Silence makes you aware of yourself

Often, we don’t feel the necessity of making contact with ...

Shona Adhikari

Artistic focus on women's empowerment

The focus on the girl child remains an important one ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture