By Hemant Jain
The 16th Lok Sabha elections which are due later this year are surely going to be one of the most crucial elections in recent history. In 2014, India will be a 67-year-old democratic country still very young and tender, but one that has managed to stay a democratic country since Independence.
Talking of the present scenario, there is a huge pressure on India and its financial markets. Various Indian and foreign companies all over the world have already estimated their targets for post-election period.
According to a Reuters poll, Indian shares may scale new highs next year after 2014 general elections, attracting offshore funds, despite an expected rough period for emerging markets when the US Federal Reserve shifts monetary policy. The poll predicts a better performance than this year’s 9 per cent increase but far more modest than the 25 per cent surge in 2013 when foreign investors bought a massive $24.4 billion worth of Indian stocks.
Uncertainty about the outcome of the elections, due by May, has prompted many investors and businesses to delay decisions as there are no clear favourites among leading parties to win a majority when India goes to elections.
Vivek Mahajan, head of research at Aditya Birla Money, says Indian shares will rise after the vote “on expectation of improvement in economic activity, better policy decision-making and an improvement in the investment climate.”
Prime Minister Manmohan Singh’s government has been weakened by years of fractious coalition rule, and has struggled to push through reforms in the labour market, taxation system and financial markets owing to lack of political consensus.
Despite the realm of confusion related to post-election results, various private companies look pessimistic.With the confidence that Indian markets will not disappoint them; they have raised their targets compared to that of previous years.
In order to have a better idea of the Indian market, a brief analysis has been done, covering most of the sectors of the Indian economy, keeping in mind the views of various trade analysts.
The performance of IT services companies is likely to improve in 2014-15 , with nearly all Tier-1 players delivering around 15% growth. The growth is expected to be broad-based, with contribution from all geographies, verticals and service lines.
Infosys had its best quarter since October-December 2011, aided by project ramp-ups and more deal closures. The management is noncommittal on margin expansion. However, it is believed that the margins have bottomed out and will rise in the October-March period.
“A fall in interest rates is expected to create a conducive environment”- Head of Research, ShareKhan
After the slowdown of the last two years, the automobile sector is poised for a comeback. Faster economic growth is likely to drive volumes. A fall in interest rates and stable fuel prices are expected to create an environment conducive for growth.
In the automobile sector, Bajaj is working on six new launches to boost market share in the executive motorcycle segment. A recovery in the premium motorcycle market, where Bajaj is the leader, will boost volumes. The company also plans to tap new markets for exports.
“We see long-term value in private sector banks and niche NBFCs”
Rajiv Mehta, AVP, India Infoline
In the banking sector , business sentiment and policy reforms should pick up after the general elections in 2014, the investment cycle may take time for any significant revival. That is why the demand for corporate credit may remain subdued in 2014. However, growth in credit to retail segment and small and medium enterprises is anticipated to rise.
HDFC Bank is the best in the industry with a substantial retail lending and deposit franchise and enviable profitability. The pace of market share gain will accelerate as it grows much faster than the system. The medium-term margin outlook is encouraging. Sustained efficiency gains and continuance of benign credit costs will enable the bank to maintain high return on assets. If macroeconomic conditions deteriorate, the bank’s valuation premium will expand further.
“Crude oil prices are expected to hover between $95 and $112 in 2014”- President, Destimoney Securities
The year 2014 is expected to be a landmark for the global oil and gas industry. The gradual easing of tensions between US and Iran may lead to normalisation of flow of crude oil from the west Asian country. Improvement in supplies from Libya and Iraq may also ease pressure on global oil prices.
“Fridge, washing machine, microwave oven firms offer investment opportunities”- Investment Strategist, Geojit BNP Paribas Financial
In the consumerable market, the stock is trading at a price-to-earnings ratio of 25. Considering the vast potential of this industry in a market like India and the company’s leadership position, the stock has the potential to rise to 250 in one year. At present, it is trading around Rs 200.
“The belief of Indians that real estate is the best investment remains intact”- Director, Equentis Capital
In the real estate sector, The DLF Company has been trying to reduce debt for the last few quarters. It is also attempting to reduce the interest burden by entering into big-ticket commercial mortgage-backed securities deals. Also, new projects launched by the company have received a better-than expected response. The existing project pipeline and improvement in execution will ensure that the company is well-placed when the sector rebounds.
“Margins will inch up as contribution of data to the overall revenue rises”-Managing Director, KR Choksey Securities
In telecom industry, the market leader accounts for 28% subscribers and 30% revenue. Its voice segment is showing healthy revenue growth, led by an increase in subscribers and revenue per user. Blended operating margin is also rising, led by cost rationalisation of India operations and higher Africa margins. Improvement in key performance indicators will support revenue growth. Data services continue to show grow on both subscriber and revenue per user fronts.
In a nutshell, this election will be crucial as it will determine capital inflows to India. EMs will be faced with the problem of capital outflows next year. With a reasonably large current account deficit India will have to attract foreign capital no matter what the election outcome is.