Money Matters: 2015 - A Game Changer For The Indian Economy
On Jan 23, 2015
A new government is in place with a majority after 25 years. The budget is just around the corner. Indian economy is out of the ICU and now akin to a recovering patient after coma, stumbling, but definitely walking again. On the international front, Oil as I am writing has fallen below US$ 50 per barrel, a price last seen in May 2009 in the aftermath of the Lehman Debacle in 2008. The government has cleverly lapped up the price correction in the name of revenue recovery by hiking taxes on Diesel and Petrol. The reduction in the price of oil is going to bring tremendous lag on benefits to a whole lot of industries as input costs are going to go down. The price of natural gas has also seen a significant fall which augurs well for some gas based power plants lying idle. Naptha prices which were hovering near record highs have fallen to 6 year lows in just 4 months which should make Fertilizer companies happy as this is one of their main feedstock. Coal prices have fallen significantly and now trading at 5 year lows and this will
help power company profits this quarter. Iron Ore, a major raw material of Steel making is also near its 6 year lows. Nobody has really passed on the benefits of all these gains to the poor customers.
Corporates are trying to understand if this is a temporary phenomenon or just the unwinding of speculative bets taken by free money available on account of profligate buying of bonds by Governments across the world in the name of propping up their respective economies. Sooner or later
competitors will step in with price cuts to garner market share and consumers will start benefitting but only towards the middle of 2015. The overall theme that you can see is that input costs are coming down at an incredible pace. I expect commodity prices to consolidate and move in a narrow range and this will enable Indian companies to reap rich benefits.
In 2015 Indian Corporates are going to have another bonanza. A fall in interest rates and a consequent reduction in interest costs. A reluctant Raghuram Rajan is going to have to give in to the Modi Government’s plan for growth. I expect at least a 175 basis point cut (1.75 %) in the next 9 months. Mr. Jaitley is shrewder than his predecessor who refused to walk with the RBI Governor. The promise of strong growth coupled with the slowing economies of China and Europe will ensure that funds do not flow out of India even if the US Federal Reserve starts increasing interest rates. Perception is in India’s favour and the India hype which re-started last year is now close to a crescendo.
The Make in India campaign is a pet project of our PM. 2015 is going to see more MNC companies buying Indian companies or setting up projects to take advantage of the Government’s efforts in this direction. Foreign Direct Investment (FDI) is going to increase significantly in 2015. You can expect at least some sops to attract investment for the “Make in India campaign” in the 2015 Budget.
The stock market is really going to see a significant upside and I foresee the BSE Index crossing 32,000 sometime in 2015. This is subject to commodity prices not increasing significantly from current levels. January has not been kind to Indian stock markets. This is because of global concerns about Energy and commodity related stocks and the possibility of increased unemployment as the Energy sector has been a significant employer due to inflated prices of Oil & Gas and Metals. As far as India is concerned, these are God sent at a time when we have hit the bottom.
How do we plan our investment for 2015?
Fixed Income Instruments: We are going to see a declining interest rate regime for the next couple of years and hence FDs of less than 5 years maturity should be avoided. I expect FD rates to be in the range of 7 % by the end of 2015 and possibly hitting a low of 6 % in 2016. If you can get 9 % for 5 years and above go for it. Lock in your FDs at higher rates. If you are looking at a 1-3 year period then you may look at FAAA rated corporate deposits which still offer rates of around 9.5 %.
PPF is the best bet as it still earns 8.7 % tax free and you can use it for availing 80C tax saving benefits as well. Talk about having the cake and eating it too. This is one of the best options for all young savers as it gives you the power of compounding. Open a PPF account today if you already don’t have one. If you have money to invest and have not hit the 1.5 lakh limit, then please invest now.
Stock Market: I am very optimistic about the stock market for 2015. India is on the way to becoming the cynosure of all global eyes once again. Though the Chinese growth story is still stronger than ours there is a general perception that China is slowing down and India is galloping ahead.
This perception will help India and this bias will send more allocation towards India. Our economy is already showing signs of growth. When profits rise expectations race ahead. If input costs stay low then you can see significant gains in 2015.The Stock Market is going to be extremely volatile in the first half as global cues are going to be bad. Euro zone weakness and an impending Greek Debt repayment crisis which will ensue from April 2015 will make day trading and short term investing perilous. Look for fundamentally strong stocks which have not moved much in the last six month. Invest in companies in metals like Tata Steel and Hindalco, refining like HPCL and IOC, Power Generation like Tata Power and Torrent Power and Public Sector banks like Corporation bank and Union Bank. Investment horizon should be for a minimum of 1-2 years to reap significant returns.
The stock market offers abundant opportunities in 2015. It is important to be patient and lock in your investments for a longer period to gain andsome returns in the future.
Have a Happy and Gainful 2015!