Expert Zone

Straight from the Specialists

Indian markets: Earnings in focus, better to stick to fundamentals


(Any opinions expressed here are those of the author and not of Thomson Reuters)

It’s reasonable to ask whether the Indian stock market has lost steam after the blistering run-up seen over the past couple of months. Since August, the markets have rallied about 40 percent, with many stocks in high-beta sectors such as infrastructure generating a return of more than 100 percent. At a one-year forward price-to-earnings (P/E) multiple of 15x, the Nifty isn’t exactly cheap for retail investors right now.

The Narendra Modi-led government, which contested and won the elections on the development plank, is expected to push for reforms in no time, taking on knotty issues related to taxation and infrastructure.

Of course, there is much it must do before the improvements begin to show — from fast-tracking older projects and resolving mining issues to longer-term imperatives such as keeping inflation under control and achieving fiscal consolidation. But there is no gainsaying that all this will improve the earnings outlook of companies and mark the beginning of a structural bull run for the market.

So what must be the strategy of retail investors now? Calculations suggest that in the current scenario, the Nifty will go into overbought territory beyond 7,400 points. Hence, a fundamentals-driven equity strategy, with an investment horizon of between three and five years, can generate better returns.

A shortcut to industrial recovery


(Any opinions expressed here are those of the author and not of Thomson Reuters)

A worker sprays water over piles of coal at Mundra Port Coal Terminal in the western Indian state of GujaratThe rate of growth in infrastructure industries falling to 2.6 percent in FY2013-14 came as a shock. That’s because these industries had been consistently growing at relatively high rates in the previous three years, in spite of the drop in production in other industries.

Infrastructure industries include coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity. Production of natural gas has been shrinking since FY2011-12. Even so, the infrastructure group maintained steady growth between 5 percent and 6 percent. The sharp drop last year was caused by lower growth in the steel and cement industries.

What ails the UK and western economies


(The views expressed in this column are the author’s own and do not represent those of Reuters)

The industrial revolution which missed India eventually resulted in this once developed and rich country being placed on the receiving end of a ruthless colonial enterprise.

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