Market Fundamentals + Outlook – Start Buying

This is the last post in the series. You can read the first two here. Historical Bear market Returns in India and Concerns / Risks the Indian market offers and how they are mitigated.

Domestic Fundamentals:
Household savings are at a robust 35% of the GDP and consumers in India are highly under leveraged at 8% of the GDP compared to 13% in Thailand, 26% in Malaysia, 36% in Taiwan and 58% in Korea. Over the years Indians have amassed huge wealth in Gold and equity market investments, which has a wealth effect.

Indian Corporates are leveraged to lower than 5%, limiting the impact of rising interest rates and cash and bank balances are about 9% of the market cap which is expected to provide cushion for corporates in the tough credit environment. RoEs are higher in most Indian industries compared to others.

Future Outlook:
Even if you consider the Bear Case outlook [forget the Base case], SENSEX EPS is likely to be around Rs 1,000 for FY09. Inspite of intact fundamentals, investors have de-rated the Indian economy which is evident from the lack of liquidity leading to a level of 10,000, wherein Sensex is trading at 10.1x one year forward, which is the lowest from 1991 till date.

Accordingly, on the belief of a clearer picture arising out only post the elections next year, stabilization in inflation and steadying interest rates in addition to an improved YoY 1st quarter FY10 corporate performance, where markets will start discounting fundamentals on expectations of new policies and de-couple itself from the Western World.

Start Investing Now with at least 2 Year Horizon:
The equity markets are trading at attractive valuations but we expect a volatility to remain. Invest at least 40% of your Funds now and go on averaging with the rest on corrections. Stick to fundamentals while investing giving preference to Large Caps. If this is all too complex, then visit our Mutual funds Section and Choose any of the funds recommended in the past.

Additional Suggested Reading:
Sr. Fund Manager of HDFC’s Outlook for Long Term Investor in the Indian Market.