Last week we highlighted some global trends (see here) that could have substantial impact the Indian economy and markets in short to midterm.
One of the top global trends of present times is the “easy
money”. It is widely believed that the liquidity conditions are likely to
remain comfortable at least till end of 2014. Besides, the central bankers have
effectively ensured that a systemic collapse like the one happened post Lehman
in 2008 does not recur. Episodes of uncertainty and instability in Greece
(2010-11), Italy, Spain (2012) and Cyprus recently have demonstrated that
financial markets are much more stable and sanguine now, as compared to
2008-09.
Unilever Plc. has taken advantage of easy and cheap money to
increase stake in its high yielding Indian subsidiary. US large corporations
that had been sitting on hoards of cash are now aggressively looking for
opportunities. U.S. deal activity surged 62 percent
during the first quarter of 2013, bolstered by a series of deals valued at over
$5 billion (see).
The Indian government, banks and corporates need to take
cognizance of this stability and take some risk to benefit from the easy money.
In our view, the political environment is holding back lots of initiatives. We
might see “cash liquidation” and “leveraging” process accelerating post next
general election.
The beneficiaries from the trend may include – (a) large cash
owners; (b) good asset owners with stretched balance sheets and (c) strong
balance sheets that can be leveraged further and (d) mid and small sized strong
businesses which are scalable – especially where the promoters’’ stake is too
high or too low.
The second trend that we need to watch closely is the
re-emergence of Japan as an economic power. In our view, Indo-Japan ties should
see substantial enhancement in coming years both at economic as well as
strategic level. A revival of Japanese economy will most likely coincide with
rise in geo-political tension especially with China and North Korea. Complete withdrawal
of US forces from Afghanistan after Iraq would also mean higher instability at
Indian borders. Indo-Japanese cooperation may become a key to stability in the
region in coming decade.
We have seen some indicators of strengthening of ties in commitments
from Daiichi, Toyota, Suzuki, Honda, Nomura, DoComo etc. We shall be watching
closely for companies, sectors and businesses that may see higher Japanese
interest in coming years.
A change in “austerity” mechanism in Europe might lead to a
sudden spurt in export demand, which had been languishing since past five
years. Watch out for some key exporters, especially in IT and pharma space.
A stronger Chinese Yuan would also create opportunities for some
Indian competitors in export market.
Our suggested core portfolio for FY14
does recognize these trends; though we continue to maintain our view that the
market may continue to selectively participate in global equity rally, while
bothering about the domestic political conditions, we see a definite bottom
being created in next 12months.
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