Opportunities and Challenges for Indian Stock Markets

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As India eyes a $10 trillion economy by 2034, the country will face challenges and opportunities over the next decade. This was the heart of a debate at the 2022 Mint Mutual Fund Conclave.

Vivek Kaul, author of the Easy Money Trilogy, highlighted the challenges and said Indians should be aware of the risks of investing in mutual funds and stocks. They shouldn’t get carried away with Sensex’s historic yields, which have been pegged at 17% since inception. “Most of these returns were generated during the Sensex’s first 15 years of existence, up to 1994 (since 1979). Returns have been subdued since then,” Kaul said. The exceptional returns of the last 2 to 2.5 years are due to the increasing formalization of the economy and the rise in operating profits.

Kaul believes investors are underestimating the negative impact of the end of an era of easy money. For India in particular, he flagged that India’s demographic dividend was not in great shape and pointed to data released by the Center for Monitoring Indian Economy (CMIE), International Labor Organization, suggesting a decline in work participation.

“What is sad is that the rate of participation of women in the labor market has collapsed,” Kaul added. He also pointed out that the Indian economy has the daunting task of tripling in size over the next 15 years.

Feroze Azeez, Deputy CEO of Anand Rathi Wealth Ltd, was optimistic about the outlook. India is in a bull run, and there will always be corrections during this phase. “If you want to take three times more than a fixed deposit, you can’t resist the nature of the animal, you have to embrace it,” he said.

The steady rise in corporate earnings, even amid gloomy and dire talks, bodes well for stock markets, he said. Noting the participation of individuals in stock markets, he said the contribution via monthly SIPs is currently greater than 12,000 crore, which remained so in difficult market conditions. This supported Indian markets amid massive overseas sales. “If India continues this global outperformance through domestic liquidity, all global emerging market indices will give India more weight,” he said.

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