How the Indian economy rebounds after a crisis - a 100-year overview.
Reasons to be bullish on India in 2021-24.
I’m super long on India and the growth story it has to offer. Already with its technological innovations such as the India Stack, UPI & Jio, and the tech-talent coming out of the country, India has aroused the interest of major Silicon Valley and global investors. Even during a global pandemic, Foreign Institutional Investors (FIIs)-induced liquidity fuelled the Indian stock market to rally and the BSE Sensex touched 50,000 for the first time! As the growth slows down for developed nations, the promising story that the world’s 5th largest economy has to offer and the fact that no country has more young people (approx ~600 million people, more than half India’s population, are under 25 years old) are reasons enough to be bullish on India.
As the bears always do, there’s enough cry in the market to allude to a major impending crash (leading to a correction this week before the budget announcements) but as the bulls always do, they’ve been raking in some serious $$$$ with the unabashed rally that the last few months have brought about. If you look at some of the biggest investors in India with over a couple of thousand crores (multi-millions & billions) to their net worth, Rakesh Jhunjhunwala, Nilesh Shah, Vijay Kedia, Ramesh Damani etc, they all have one thing in common: they’re all bulls. As a bull, if you ask me about my predictions for the market, I’ll be the first one to say that while there will be corrections (10-30% or even more) I’m on the side that believes that the Sensex and NIFTY can double in 5 years. Yes, that means Sensex at 100,000 and NIFTY at 30,000 by 2026.
How does one calculate that? Going back to the Rule of 72 that we discussed in the compounding article if you assume that the indices will continue to grow at 14%, which it has historically for 30 years, (72/14 ~5) which means the indices should double by 2026.
And to those who’re worrying about the post-pandemic blues, here are some facts to consider from the last century i.e 100 years:
There have been 4 big bull runs since 1979, pushing the Indian market to deliver 380x (or 38,000 percent) returns to date.
The biggest bull run was last witnessed during 1988-92, where the market had rallied about 10x in 4 years.
The bull run of 2003-2007: Over five years, the Sensex moved up from 3199 points in Jan 2003 to 21206 points in Jan 2008.
Every time in the last 100 years, whenever there has been a crisis like COVID, it is always followed by a strong run for the stock market for at least 3-4 years. Some examples to consider: Spanish flu in 1918-20 was three times more lethal than Covid, yet 4-5 years after that there was a strong bull run. During the Second World War too, the S&P 500 index rose 80% and continued its bull run post the war. Even after the great financial crisis of 2008-09, a powerful bull run followed in India and the US.
This is no coincidence, there is a rationale behind why this happens. Due to the crisis, the central banks pump in stimuli in the economy to pave a path to economic recovery. Particularly a US recession, typically helps an economic boom in India because of a 50-80% correction in the price of oil, leading to India benefiting as an importer. Additionally, if the US 10-year bond yield drops by 2.5%, through repo rate cuts the RBI passes on the benefit to individuals.
Thus, a global stimulus enables liquidity in the Indian economy through cheaper oil and cheaper capital along with addressing the issue of CAPEX for different industries such as Auto OEMs, Auto Ancillaries etc as people buy cars, real estate when the interest rates drop by 2.5-3%. If you look at the data from the past century, you will find a very strong correlation between an exigency and a strong bull run that follows it and an economic boom for India the year after a US recession.
If you invest in high- quality stocks with sound fundamentals and a high-quality management team, you should continue investing systematically in the market. As an investor, nothing hurts like the returns you didn’t make when you had the opportunity to. But beware of the misleading traps that unfortunately come with every bull-runs, where companies without sound fundamentals and crooks in management teams often see a rally due to ill-informed retail investors. You reap what you sow, is the biggest truth especially in the financial markets.
Don’t miss out on this bull-run.
“Everybody dies but not everybody lives.” – Drake
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You are right. However, this article is filled with HOME COUNTRY BIAS. Whatever you said is absolutely correct but if you compare the returns in Dollar terms India stands nowhere. In Dollar terms India is at 21st rank when it comes to returns generated in 2020. In dollar terms nifty/sensex have not even doubled in the last 11 years whereas s and p 500 has more than tripled. The economic growth of US has only been 2-3% during the same period. There is a SLIPPAGE effect which describes this de-linking between economic growth and stock market returns. Even a country like Japan which has -ve interest rates has given more returns than India in the last 15 years (all in $ terms).