Can reach Indian SENSEX 30000

Good mood on India's stock exchange

India's economy and booming country's stock market have overcome the shock of the Narendra Modi's government's cash withdrawal. Strong economic data, room to cut key interest rates due to the sharp drop in inflation and economic reforms could bring the stock market a good 2017.

By Ernst Herb, Hong Kong

The massive demonetization program that came out of the blue on November 8th not only slowed the growth of the previously soaring Indian economy, but also sent prices on the Mumbai stock exchange plummeting. However, recent trends show that the drastic measure did not put a permanent end to the boom on the subcontinent. At 28,156 points, the BSE Sensex Index is currently around 2% above the level on November 8, the day on which Prime Minister Narendra Modi's government surprisingly announced that by the end of the year 86% of the cash in circulation would be from the Traffic will be drawn. The national currency, the rupee, which fell significantly in external value in the two weeks following the launch of the cash reform, has now largely overcome its weakness. Nevertheless, in mid-January the International Monetary Fund corrected its forecast for growth for the financial year that lasted until the end of March down from 7.6% to 6.6%. With this, India has also lost the distinction of being the world's fastest growing major economy. That the weakness will only last for a short time is not only the opinion of Prime Minister Modi, whose approval ratings fell significantly in the first few weeks after November 8th. The rating agency Moody's also assumes that the Indian economy will return to its old strength in the second half of the year. "India will be one of the fastest growing economies in the world in 2017", it said in a situation assessment written in mid-January.

Inflation falls to 3.4 percent

The dynamism is driven, among other things, by falling inflation. In December, consumer prices fell to 3.4%, below the target of 4% set by the central bank, primarily thanks to falling food prices and the continued moderate commodity prices in a long-term comparison. That was at least partly a consequence of the lack of cash. As a result, the retail sector temporarily suffered a significant drop in sales.
Although the Reserve Bank of India left the repo rate at 6.25% on March 8, citing the significant global uncertainties, it has room to make the money cheaper later in the year. The mostly good economic data to be expected in the coming months should also put people in a good mood on the Mumbai stock exchange. Above all, because a whole series of economic reforms passed by parliament, such as the nationwide unified sales tax and the associated better integration of the internal market, will be implemented in the course of the year. In Morgan Stanley's opinion, the prerequisites for a prolonged price rally are the relatively low equity valuations, the expected higher dividend payouts and upcoming business combinations.

Return of the foreigners

This means that foreign investors who have made net sales of $ 3.8 billion since the beginning of November 2016 are likely to appear again as buyers of Indian stocks. In the past twelve months, prices have received a boost from domestic institutional investors in particular. In the first eleven months of last year there was a total of 448 trillion. Rupees ($ 6.7 billion) flowed into Indian mutual funds. The BSE Sensex Index is currently more than 10% above its level at the beginning of 2016.
Christopher Wood, global equity strategist at the brokerage house CLSA, recommends buying Indian dividend stocks with reference to the large domestic market. This is because India is better protected against external shocks such as protectionism than small, strongly export-oriented emerging countries. The courses are also supported by the draft budget for the coming financial year submitted to Parliament in mid-January by Finance Minister Arun Jaitley. In its budget, the government announced a whole series of growth-promoting measures such as an investment program in rural areas, the acceleration of the ongoing infrastructure program or tax breaks for small and medium-sized companies.

Index target of 30,000 points

All of this has boosted Indian cement producer stocks such as ACC Limited in particular. Shares in the mortgage loan specialist HDFC also rose significantly. According to CLSA analysts, other attractive sectors also remain high-end consumer goods and telecommunications. Morgan Stanley believes that the Sensex index could rise to 30,000 points by the end of the year. This assumes, however, that rising raw material prices do not lead to a renewed surge in inflation, that corporate profits do not disappoint and that high protectionist barriers are not built up around the world.