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By:

C.S. Krishnamurthy

21 June 2025 at 7:45:51 pm

Strong India, Cautious Investor

The Indian economy appears stronger than the nervousness visible in the stock market might suggest. Corporate earnings are improving, domestic demand remains reasonably resilient and several sectors are reporting healthy growth. Yet investors are facing an unusual mix of risks: crude oil is moving towards $100 a barrel, global bond yields are rising, foreign investors have turned sellers again and parts of the Indian market remain expensive. That leads to a simple investment message: India's...

Strong India, Cautious Investor

The Indian economy appears stronger than the nervousness visible in the stock market might suggest. Corporate earnings are improving, domestic demand remains reasonably resilient and several sectors are reporting healthy growth. Yet investors are facing an unusual mix of risks: crude oil is moving towards $100 a barrel, global bond yields are rising, foreign investors have turned sellers again and parts of the Indian market remain expensive. That leads to a simple investment message: India's growth story remains intact, but investors should not mistake a strong economy for a risk-free stock market. The latest corporate results offer considerable comfort. The economic momentum built over the past few quarters has not been derailed by geopolitical tensions. The margin pressure feared across several industries has also been less severe than expected. More importantly, earnings growth has been reasonably broad based. Large, mid and small companies have all shown healthy growth. If oil-related businesses, which are somewhat different in their earnings pattern, are excluded, the gap between the three market segments is not particularly wide. Financial services have been among the strongest performers, with banks, NBFCs and capital-market businesses reporting good growth. Capital goods, metals, telecom and power have also done well. For investors, this is significant. A stock market supported by genuine improvement in corporate profits has a much stronger foundation than one driven merely by enthusiasm. Domestic Risk The monsoon, however, remains an important domestic risk. Rainfall has been below normal so far, although the impact on the rural economy has not yet been alarming. Tractor and two-wheeler sales remain reasonably strong, suggesting that parts of rural India continue to spend. At the same time, increased demand under the rural employment guarantee programme suggests that weaker rainfall may be affecting poorer rural households more severely. Food inflation adds another complication. Higher food prices may improve the income of farmers who sell their produce, but they also increase the expenses of families who buy food. Therefore, higher food inflation cannot automatically be interpreted as stronger rural purchasing power. India is nevertheless better prepared than it once was. A healthy IPO market is a positive development. It allows companies to raise capital and gives investors fresh opportunities. But there is a point at which too much supply begins competing for the same pool of money. The current market provides a striking example. The much-awaited IPO of the National Stock Exchange is reportedly being considered at a size of around Rs. 24,000 to Rs. 25,000 crore, down from earlier expectations of Rs. 30,000 crore but a very large issue nonetheless. The message is not that investors should avoid IPOs. It is that an exciting new issue should not automatically be preferred over an established company merely because the new issue is attracting headlines. The bigger uncertainties are global. Brent crude has moved close to $100 a barrel as tensions in the Middle East have intensified. For India, which imports most of its energy requirements, expensive crude can mean higher inflation, a wider trade deficit and pressure on economic growth. US bond yields are another concern. Higher yields make dollar investments more attractive and can reduce the appetite for emerging markets such as India. This does not necessarily mean that global investors have abandoned India. It shows how quickly investment decisions can change when oil prices, interest rates and currencies move. Domestic investors, particularly mutual fund investors, therefore have an important role in providing stability. Their regular investments can partly offset foreign selling, although domestic flows cannot make the market immune to global shocks. Faster Growth The enthusiasm for small and mid-cap stocks is understandable. Many of these companies offer faster growth and have rewarded investors handsomely. But if investors pay too much for expected growth, even a good company's share price can disappoint. Large-cap companies, after a period of relative underperformance, may offer more comfortable valuations and greater stability. The right mix will depend on an investor’s financial goals, investment horizon and ability to withstand market fluctuations. India’s economic story remains encouraging. Corporate earnings are healthy, domestic demand has resilience and the economy has become better equipped to absorb individual shocks. But the stock market is not the economy. For the common investor, therefore, the most useful question today may not be, “What should I buy?” It may be, “Is my portfolio balanced enough to withstand what I cannot predict?” (The writer is a retired banker and author. He can be reached at krs1957@hotmail.com. Views personal.)

BJP Boost

Correspondent
Oct 9, 2024
2 min read

Updated: Oct 22, 2024

As the dust settles over the recent Assembly elections, the BJP, defying anti-incumbency prediction of political Cassandras and exit polls, is set for a historic third term in Haryana. This will buoy the party after its underwhelming performance in the Lok Sabha polls. The Haryana outcome not only reinforces the BJP’s foothold in national politics but also presents a counter-narrative to the INDIA bloc’s post-election fervour.

Despite the bogey stoked by lingering farmer protests and discontent surrounding the controversial Agniveer scheme, the BJP strategically diversified its approach, relying not solely on Prime Minister Narendra Modi’s star power—evidenced by his reduced number of rallies—but also on a ground-level consolidation of anti-Jat votes. The Congress’s over-reliance on the Jat community backfired, rallying other groups against it. Interestingly, the Dalit vote, which the Congress anticipated would tilt in its favour, has not completely abandoned the BJP.


At the forefront of the BJP's campaign was Chief Minister Nayab Singh Saini, whose relatively short tenure allowed him to distance himself from the decade-long rule of the previous administration. By introducing measures to benefit the backward classes, including a significant income limit increase for OBC employment from Rs. 6 lakh to Rs. 8 lakh, the BJP effectively shifted the narrative in its favour. Their mantra of ‘bina parchi, bina kharchi Naukri (promising jobs without bribes) resonated with voters.


The BJP’s rejuvenated team, led by key figures such as Union Minister Dharmendra Pradhan and state leaders, has seemingly addressed concerns that arose following its poor showing in the Lok Sabha elections. The incorporation of new candidates in place of established leaders provided a fresh face that contrasted sharply with the Congress’s decision to recycle incumbents.


In contrast, in Jammu and Kashmir, the National Conference, in alliance with the Congress, having crossed the majority threshold, reclaimed its historic dominance and is set to form the government. Here, the BJP’s performance in the first Assembly election held after the abrogation of Article 370, fell short despite its strenuous attempt to position itself as a proponent of development.


The electorate’s apparent rejection of hardline factions like the PDP reflects a nuanced response and win for democracy. Notably, the results have shown a significant rejection of separatist candidates, including those from Engineer Rashid-led Awami Ittehad Party and Jamaat-e-Islami, who failed to make a meaningful impact in the polls.


The BJP’s emphatic victory in Haryana redeems its Lok Sabha misstep but also signals a broader political resurgence, giving the party renewed vigour to march into future contests like the crucial Maharashtra Assembly election.

 
 
 

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