Looking at the year to date performance for India or for that matter even month to date, one can see that the Indian market continues to outperform not just our emerging market peers but on a quarterly basis, we managed to even outperform what US equity markets have done. What is leading to this outperformance?
There are two big factors here. One is that post second wave, businesses in India have demonstrated a remarkable resiliency and that is now starting to get factored into the fact that in case there is a third wave also, that will still be the likely outcome. Also, global investors are realising that China is a much more difficult and complicated place to do business in than probably one realises and the MSCI China has underperformed MSCI India for the last five and ten years despite a lot of negativity on India and the positivity on China.
On the global level, a fundamental change could happen over the next couple of years if global allocators decide that India deserves a slightly bigger weight in their portfolio compared to say China.
We are already at a base of 60,000 for the Sensex before the choppiness last week kicked in. We were just 100 points away from 18K on the Nifty. Do you sense this market has more legs to go before we call it a day? Also, at what phase of the bull market do you think we are currently in? Many believe that while we are not at the early stages, the bull market has a long way to go before we call it quits.
Experience has taught us that we never call it quits. There are only temporary periods of turbulence and that could last a couple of years but structurally there is still a long way to go. India right now is in a little bit of a sweet spot where a lot of the reforms cause a lot of pain over the last few years.
These have been well meaning reforms except maybe one had a negative economic impact and that usually takes a few years. We took about four or five years to get our banking system in order. But the banking system now largely looks in s very good condition and that is great for credit growth. The overall economy is reviving very well. We are also starting to see a move in employment towards more formal sectors and this is primarily driven by the gig economy but that is also a positive long-term trend.
The other positive long-term trend I see is that demand for IT services professionals in India is going to last for a very long time and the reason for that is globally every business has realised after the pandemic that they need to be digital first and when that happens at a global level, there is not enough supply of IT services professionals.
The other important aspect is that these companies have gotten comfortable with important IT work being done remotely which is never the case before. They wanted all onsite and so if it is being done remotely well, they are comfortable with it getting done remotely from India and as result more higher value projects are getting outsourced. So we could see a renaissance of IT services employment ,let alone demand that again has second and third derivative benefits in consumption in India over the long term, so quite a few positive things.
One thing to keep in mind is inflation and that is a global issue. It hits India through oil prices as well as through the energy basket and that could be a global issue for next year. Whether inflation is cyclical or more persistent, the worrying part there is globally wage inflation tends to be more sticky than some of the product price inflation.
