We are living in a competitive world, wherein the two most populated countries are contesting for the title of “The World’s fastest growing Economy”. In the World Economic Outlook, October 2015, IMF has forecasted that India will be the fastest growing economy in the world in the two consecutive years i.e. 2015 and 2016 registering a growth of 7.3% and 7.5% surpassing China which is expected to grow by 6.8% and 6.3% respectively.
To put things into perspective, let us look at how all the major economies have grown over the last 4 quarters.
As per the Quarterly Estimate of GDP for the second quarter (September-July, 2015-16), India grew by 7.4% vis-a-vis 7.1% in the previous quarter. On the other hand, China grew by 6.9% in the same quarter. The different sectors contribution to the GDP is given below.
|Component||YoY Growth %|
|Electricity, Gas, Water Supply||6.7||3.2||4.2||8.7||8.7||10.1|
|Finance and Real Estate||9.7||8.9||10.2||13.3||13.5||9.3|
|Mining & Quarrying||3.2||4||2.3||1.5||1.4||4.3|
|Trade, Hotels & Transport||10.6||12.8||14.1||7.4||8.9||12.1|
It is very clear from this table that the manufacturing sector has started accelerating and this is a positive sign for the Indian economy.
From the point of view of investors, although India currently looks expensive, the FY17 PE is attractive and this, along with the improving macro-economic parameters should give confidence to investors to start taking an exposure into Indian markets.
|Country (Index)||P/E Yr 2015||P/E Yr 2016||P/E Yr 2017||Earnings||Earnings|
|Growth 2015 (%)||Growth 2016 (%)|
|USA (S&P 500)||17.7||16.2||14.4||-1.30%||9.00%|
|Europe (DJ Stoxx 600)||16.4||15.4||13.8||5.90%||6.80%|
|Japan (Nikkei 225)*||19.2||17.4||16||13.20%||10.40%|
|Emerging Markets (MSCI EM)||12.3||11||9.8||-12.10%||11.40%|
|Asia ex Japan (MSCI Asia ex Japan)||12.5||11.4||10.4||-5.50%||9.20%|
|Hong Kong (HSI)||11.3||10.7||9.7||-6.40%||5.40%|
|Taiwan (Taiwan Weighted)||13||12.4||11.4||3.10%||4.80%|
|South Korea (KOSPI)||10.4||9.1||8.4||17.80%||14.40%|
|China (HS Mainland 100)||9.7||9.1||8.1||-6.50%||6.60%|
|Thailand (SET Index)||15.4||13.2||11.8||-4.70%||16.20%|
|Australia (S&P/ASX 200)||15.6||14.5||13.3||-6.70%||7.90%|
|NASDAQ 100 (Technology Heavy)||20||17.8||15.6||7.20%||12.80%|
|Source: iFAST compilations|
India will definitely face volatility if the FED decides to hike the rate and the Indian government is not able to pass the major bills in the Parliament in its ongoing winter session. However, these changes will only be for a short while. We believe that as the government has already started spending on CAPEX and the RBI is vociferous about the fact that the banks need to transmit the rate cuts, it is only a matter of time before the earnings of India Inc. start showing an upward bias.
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