India’s Sensex drove through the 30,000 mark yesterday, which represents an important psychological level for many local and foreign investors. The index has pushed through the previous high of 30,024, which was reached in March 2015. The strength in India’s market has been driven by the macroeconomic turnaround that we’ve witnessed for the past 4 years, the aggressive reform agenda from the country’s ruling BJP party and an expected inflection point in corporate earnings.
For us here at Neptune, there remains plenty to be positive about. The macroeconomic health of India is the strongest it has been in a decade. Growth is accelerating, inflation is falling and the external vulnerabilities are diminishing. The set up for India over the next few years is particularly positive – alongside increased political stability, we have now passed through the short-term demand reset from demonetisation. Corporate earnings are set to rebound as return ratios will be driven higher by the combination of excess capacity, improving demand and operating leverage, and continued balance sheet restraint. India’s macro scorecard remains amongst the healthiest in the emerging world, whilst investor ownership has receded. The mid cap space remains the most interesting for us as domestic equity participation continues to accelerate.
Kunal Desai, manager of the Neptune India Fund