Indian Growth Curve Inches Ahead

When Indian men’s cricket team captain, Virat Kohli, was at his peak performance, his routine was like wake up, score centuries, sleep and repeat. Similarly, the bulls also seem to have entered into the same mode where they open, hit a new all-time high, and repeat! Yes, such has been the move on D-Street that after the fifth straight day of record high closing of Nifty, it has extended its winning streak for six straight days on Thursday, which is one of the longest winning streaks in recent times. This march of victory on D-Street continued despite the fact that IT bellwether TCS’ earnings were below market expectation and created some sort of chaos. However, this disappointment did not result in any breach of the trend.

This is exactly what we had mentioned in our last editorial i.e. follow the trend and do not panic. Hope our readers have been handsomely rewarded by this advice. Talking about the Q2FY22 earning season, TCS kicked off the phase and the stock tumbled down as it did not put the investors in a good mood. Once again this gave reasons to the cynic to raise questions regarding the valuations of the IT stocks and many even went on to claim that the bubble will soon burst. Some even claimed that all the IT stocks will follow the suit. This reminds us of the famous quote by American motivational writer William Arthur Ward: “The optimist pleasantly ponders how high his kite will fly; the pessimist woefully wonders how soon his kite will fall.”

However, just a couple of days back the IT stocks made a strong comeback. This remarkable turnaround in the IT stocks was mainly driven by impressive results announced by Infosys and other IT stocks. Infosys delivered a strong Q2 performance with YoY growth increasing to 19.4 per cent and sequential growth accelerating to 6.3 per cent in constant currency. Its operating margin for the quarter was resilient at 23.6 per cent; plus the icing on the cake was that company increased its revenue guidance to 16.5-18.5 per cent. If this was not enough to entice renewed interest in IT stocks, then Mindtree Limited’s stellar performance and commentary certainly left investors awestruck.

As the management reiterated, the demand environment continues to remain strong and it expects industry-leading growth in FY22. The earning season would pick up its pace in the coming days and in due course we will have fair bit of idea about how the Q2 earnings are shaping up overall. One of the major announcements made during the week was that the International Monetary Fund (IMF) has retained its projection for India’s economic growth in the current fiscal year at 9.5 per cent despite the fact that it has moderately scaled down its forecast for the world economy during 2021 by 10 basis points to 5.9 per cent. India is certainly emerging as a bright spot and has shown strong resilience to revive from the jolt of the second wave of the pandemic.

Furthermore, with the sale of Air India to Tata Sons, the visibility for the rest of the divestments lined up in fiscal 2021- 22 looks bright. Hence, we are seeing a lot of interest in PSU stocks. Also, a normal monsoon is adding to the chorus of tailwinds along with improved bank credit growth in August 2021. After connecting all the dots, it’s clear that these factors indicate that India is set for a new growth curve in the coming years. India VIX, which gauges the expectation of volatility in the near term, is showing no signs of panic despite the fact that the Consumer Price Index, a commonly used measure of US’ inflation, rose 0.4 per cent on MoM basis in September, exceeding the median estimate of 0.3 per cent and also the fact that the US Fed may start tapering by November.

Here is some interesting data to share: According to the data published by the Association of Mutual Funds in India (AMFI), the total inflow through SIPs in the month of September surpassed 10,000 crore marks as it grew by 4.31 per cent on MoM basis. Interestingly, in FY20-21, the total inflow through SIPs was at Rs 96,080 crore and in FY21-22 in a period of six months the inflow through SIPs stands at Rs 56,454 crore, which is almost 60 per cent of the FY20-21 total inflow. In our view, the Indian markets are nowadays not too concerned about the global flows as the retail inflow has kept market afloat.