While global bond yields and crude oil prices may be a cause for concern, successful execution of Prime Minister Narendra Modi’s privatisation plans can protect Indian markets from such risks.
That’s according to Ashwini Agarwal, founder and partner at Ashmore Investment Management India. “The worry for Indian markets is whether the government delivers on the promises it has made,” he said.
Modi’s push for privatisation hasn’t yielded results so far with the government’s earlier plan to sell Air India and other public sector companies not receiving interest. His administration now wants to keep a “bare minimum presence” in key sectors and has lined up share sales to cede control in state-owned oil refiner to banks.
According to Agarwal, there seems to be a “tectonic shift” in the way the government is looking at the role of PSUs in the economy and what it means for the investment plans—creating the social, human and physical infrastructure required for growth and allowing the private sector to prosper.
“These are very big changes,” he said. “We’re keen to see delivery on these fronts and if delivery happens, global factors will not be a risk for the Indian market outlook.”
He sees a huge value unlocking in PSU stocks. Although the bulk of the gains have been captured in the last six months, reflected in BSE PSU Index’s 27.13% gain so far this year compared with a 7.08% rise in the S&P BSE Sensex. “If these businesses are allowed to be run independent of government influence or policy, then a lot more upside can be expected in the years to come.”
While moderate inflation is good for the economy and commodity inflation may only temporarily affect margins, he said crude oil could pose a major risk for sentiment. Indian markets, however, should not be largely affected so long as demand returns, he said, citing the recovery of various sectors and the vaccination drive for his optimism.