India’s equity market
On Indian equities, I think the catalysts of cleaner company balance sheets and strengthening business and consumer demand augur well for both nominal gross domestic product (GDP) and corporate earnings growth. I see India’s economy as being in much better shape structurally than it was pre-pandemic and expect GDP growth of around 7% for full-year 2022, followed by annual growth in the neighborhood of 6% – 7% over the next few years. Rising interest rates are a potential headwind, but I suspect the Reserve Bank of India will be unlikely to hike rates too aggressively for fear of dampening demand and growth.
Bottom line: While overall market valuation has been quite elevated lately, I continue to believe discerning investors should look for opportunities to “buy the dips” in India’s equity market going forward. While not my base, the biggest risk to my view is a large and sustained upward move in commodity prices, which could adversely affect India’s current and fiscal accounts and push broader inflation even higher.