Every day market experts try to deconstruct the market into easy to understand and easy to explain stories, though only occasionally they are right. They give us Modi wave, GST big bang, demonetization shock, Brexit mess, Dollar supremacy, Trump protectionism and so on, which all makes sense to be fair to them, but only for a short while sadly. It may help the business of story telling but does it really help the investors, we humbly ask.
Be as it may for some- heck its good that way- we think that its mostly the forgotten story which drives the market for far too longer than market can talk about. Remember QE that lifted US stock markets for 8 years. Well, the watershed moment for India was June 2013. Exchange rate depreciated by 20% before policymakers could bat an eyelid. A crisis was declared. Cut to the chase, the biggest realization was that far too much of India household savings has been going in gold and real estate. Government and RBI swung into action to crackdown the flow towards unproductive bullion and tightened its noose around RE.
Last we checked households are still not buying as much gold and as much real estate as they used to. They have developed a taste for stocks, mutual funds instead. The household financing savings in India is around US$200bn annually. In comparison, the foreign portfolio investment in Indian stocks is around an average US$20-25bn in a good year. Suddenly the FII appear miniscule, a sea change from what India story had been prior to 2013. Yet this is not to say that awakening of domestic investors is a permanent death knell for bears. What one can say however is that the texture of India story has probably changed from macro to micro. If it means anything for valuations, the experts might know.