TINA factor in Indian Equity Market

Indian equity stock market is doing well since September 2012 as it remains the most eye-catching relative to other countries. In other words, while the Indian economy is not in the best of shape, it’s still more attractive than the United States and European Union as the last two undergo economic disruption, and this is the reason why investors and foreign institution investors (FIIs) are pouring easy money into India. This is called the “TINA” factor or “There Is No Alternative”.

Since India is relatively better off than the rest of the world, Indian equity stock markets is a remarkable destination despite plenty of headwinds as far as Indian economic fundamentals are concerned. Global investors argue that India is a place where they would like to put money to work because the other options do not appear attractive enough.

Indian investors are the most optimistic (83% of respondents) about their home country equity stock markets, out of the 19 countries surveyed by a Franklin Templeton global investor survey conducted at the start of the year. However, similar to the global trend, majority of the Indian investors are planning to adopt a more conservative strategy in 2013.

Indian companies are at the top because they exhibit sturdy growth in earnings, without too much deviation. Even the relative variability is low which implies that earnings enlargement between all the companies across the years is not that widely dispersed. Even India’s growth rate since 2001 trumps that of US as well as developed markets as a whole. This is one reason why global investors would prefer steady Indian shores rather than foreign ones. Over time, not only has earnings growth been comparable with that of the rest of the world, but the earnings stream has also exhibited markedly lower volatility.

Respondents in India have the highest return expectations amongst all countries surveyed – 15% in 2013 and 22% over the next 10 years. However, high inflation is clearly the top factor making investors reluctant to invest in the stock markets in India followed by the state of the global economy. The top three asset classes cited by Indian investors for 2013 and the next 10 years are property, precious metals and equity stocks.

Apart from this, India’s recent performance, which has been one of the best performing stock markets YTD, has caught the eye of investors worldwide. This means more investors are intense and keeping an eye on upcoming corporate earnings, not to mention the slew of economic reforms and whether they’ll be passed in the parliament.

Stock picking opportunities exists, especially for passive investors. Diversification however is important in order to reduce volatility. Diversification will work if the stock market is not dominated by one sector alone.

To conclude, we reiterate our faith in long term potential of the Indian economy and advise investors to invest a part of their portfolio in equity instruments to generate better returns. Investors can choose from direct investment, mutual funds or PMS depending upon their respective profile.

By Ruchita Gajjar– Research Associate – Concept Securities Private Limited