Benchmark indices have seen a sharp fall year to date largely on account of global factors such as the slowdown in the Chinese economy, currency devaluations and fall in crude oil prices. Domestic macro indicators, however, continue to remain favourable, with 3QFY2016 GDP growth exceeding expectations at 7.3%. For consumption growth and inflation, key monitorables will be the seventh pay commission impact and likelihood of good monsoons.
A key trigger for the markets would be if the government is able to present a budget focused on growth and increasing investment spending, while staying firm on the fiscal consolidation path. The sharp reduction in crude prices has offered the Government a windfall that will be diverted towards investments in infrastructure, urban development and welfare schemes. With the backdrop of the budget, we believe select plays focused on infrastructure and housing would be key beneficiaries going ahead.
While global headwinds continue to affect liquidity, India will remain a key beneficiary of lower commodity prices and any delays in US rate hikes. With the correction, markets are now trading at 13.5x FY2017E earnings, which is quite reasonable. In our view this remains a bottom-up stock pickers market, with quality stocks now trading at attractive valuations, which investors can start accumulating at current levels.
