Looking into the crystal ball - India 5 years from now!

Hi Everyone,

I haven't had the time to write much since quite some time due to the changes going on at DENIP Consultants and due to a lot of other commitments. However, I thought that now was the opportune time to write a few lines.

A lot has changed with regards to the Indian Investment Scenario. I honestly do believe that we are headed in the right direction and with the government policies kicking in across the globe its time to consider the next 5 year scenario.

In my opinion, the Indian GDP growth rate should clock between  6.5% and 9% with inflation averaging at 6% to 8%.  I also believe that the interest rates are about to cool off with a lot of dollar inflow into the Indian economy. This should bring down our fiscal deficit and also the rupee should appreciate to the levels of USD/INR of Rs.40 per dollar.

Sector wise break down:

1. Financial & Financial Services - Banks, M&A players and Broking houses(finally) should enjoy the next 5 years. The Government of India should start pushing for investments over savings. Term insurance will be preferred over traditional products that earn a nominal 10% return p.a. No more tax breaks for investing in Insurance, PPF should push investors towards the stock market.
2. Auto - Luxury players should enjoy a rising market share. With increasing incomes and better roads this sector will continue to enjoy returns. Keep an eye on the two wheeler sector.
3. IT - Time to go underweight on this sector. I think the wealth creation opportunities are almost done with and I would like to treat this sector now as a defensive sector where wealth is not created but your money is safe. Tax breaks to finally end too.
4. Telecom - Will 4G impact this sector? I believe so! Keep an eye on RIL and Tikona. Game changers!
5. Metals - Buy on dips over the next 2 years. Global demand and Indian demand should pick up
6. Capital Goods & Infra - Government projects to finally pick up with a view to improve the Indian infrastructure should help these companies. Finally better roads and lesser potholes should happen over the next 5 years.
7. Oil & Gas - This sector has always confused me and continues to do so. I've always bet on the top 4 and should continue to do so.
8. FMCG & Consumer Durables - Yes this is the sector that should attract investments and yes it will create wealth and employment, but do you really want to invest at 40PE? If you're invested already enjoy your profits. Remember the power sector in 2009-11 phase? This sector is going through a similar phase.
9. Real Estate - Property prices on the residential end should stabilize or fall but the rental on the same should rise. Commercial properties should enjoy escalating prices and higher rentals. 100% white payment should happen too which should reflect in the books of these developers. Still a sector where I want to purchase the property rather than own the business.
10. Power and Energy - Weren't this the sector be a part of for 2012? September already and we haven't seen them create capital for their investors. Stay invested, we are in a supply shortage phase and will see improvements in this sector too. Money will be made for people who have started investing in the past year or so due to cheaper PE's finally. Be patient.
11. Health Care and Pharma - A lot of reforms need to hit this sector. Will keep this as the one to watch out for. Have a 10 year time frame and start systematic investments in this sector. Should be a good sector fund to own.
12. Hospitality and Gambling - Will the GOI finally make gambling legal? Seems like the way forward. This sector should create wealth over the next 10 years in India. too. Tourism India promotion should help this sector.
13. Agro - Process improvements and supply side improvements should lead to wealth creation in this sector. 

Finally, the nifty chart for all you technical lovers:

I think with the interest rates falling going forward, this could be the set up to the perfect Indian bull run. Do start investing and be patient. It's time to get out of bank fixed deposits and invest in the Indian stock market for higher and better returns.

Also, don't forget to invest systematically in Gold. Gold might not give you super return in the next 2 years but with the amount of money being pumped into the system inflation should continue to be that thorn to take care of. A systematic way should help you not only accumulate gold but also take care of any major falls in the gold price. It's the perfect hedge to the bull run but the only way is to be systematic and not in one shot. 

I have put in very generic thoughts and would be happy to discuss them out in detail. Post your thoughts in as comments or just drop in an email on dewang@denip.in. 

Will be happy to respond.

Thanks,

Dewang K Mehta

DENIP Consultants Pvt. Ltd.