Politics may be fluid, but economics is still solid. Time to be somewhat greedy: Raamdeo

In equity investing, it’s very important to cut out the noise. On Tuesday, after considering the election results, the Nifty tanked almost 6%. This is a knee-jerk reaction to the optimism built up by the exit polls, which had driven the markets up by 3% on Monday. In my view, both these events are noise.

So what is not noise? The fact that BJP is still by far the single largest party. The fact is that all said and done, the NDA has the mandate to form the third successive government. The fact that development reforms will continue. And the fact that PM Modi’s ambition to make India a developed nation by 2047 remains intact.

Sure, India’s political situation has turned somewhat fluid. However, its economics still remain rock solid. India’s FY24 GDP growth is a robust 8.2%. Its foreign exchange reserves stand at a handsome $ 650 billion. Inflation is low and global oil prices seem to be softening. RBI is expected to cut rates. Rating agencies have upgraded their India outlook. Monsoons are expected to be good. All of the above will ensure that the Indian economy remains resilient. Sooner rather than later, this will trickle down to corporate earnings growth, a key driver of the stock markets.

Then, there’s the point of fund flows into the market. India’s retail investors are thronging the stock markets like never before. New demat accounts are being opened at the rate of 3 million per month. Today, total demat accounts are just over 150 million. If the current trend continues, this figure will double in the next five years.

Monthly SIP (Systematic Investment Plan) flows, which were at ₹8,500 crore in March 2020, today stand at over ₹20,000 crore. This phenomenon has helped the markets comfortably absorb huge FII selling in the recent past. In fact, it’s quite possible that FIIs may use the current market correction to re-enter India, having missed out in the last 12 months or so.

So, what does all of this mean to the markets? As legendary American investor Benjamin Graham as said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”In fact, there may well be a pun on the word “voting”. The voting results have caused the Indian markets to turn into a voting machine. This means that over the next one year, there could be some derating of India. But such derating, if any, will be more than offset by corporate earnings growth of around 15%. In effect, expect muted equity returns over the next one year.Now comes the “weighing machine” bit. Indian equity markets have delivered long-period returns of 14-15%. BJP not getting a majority should in no way alter this trend. Thus, I maintain my view that India’s market benchmarks should double in the next 5-6 years.

Here’s my message to new investors: Warren Buffett has said, “It’s wise for investors to be fearful when others are greedy and be greedy when others are fearful.” The current fluid politics has caused the markets to be fearful. I advise you to believe in India’s solid economics and be somewhat greedy.