Equity markets have been on a roll. The Sensex has shrugged off the Brexit blues to soar 24 per cent since the February lows. The valuation of Indian equity is in the goldilocks territory — not too good, not too bad. The Sensex trades at a price-earning multiple of 20.69; slightly above its four-year average of 20.2 but well off the four-year high of 24 times. But the trouble is that companies or sectors that are recording better growth in earnings trade at very steep valuations, with the positives already factored in the stock prices. Other sectors are still grappling with myriad issues.

The themes If the market has to move further from these levels, what are the factors that will drive growth? This is the question we answer with the four segments of this story.

Two consecutive years of poor monsoon have dealt a blow to rural consumption, overall economic growth and to companies that depend on rural India and the agri-economy for their business. A good monsoon this year will be a kicker for these segments. India Inc has been staving off investments and selling assets to pare debt. With interest costs too coming down, the earnings of many companies are set to look better. The GST is on its way to becoming a reality soon with both Houses of Parliament giving a green signal.

Manufacturing companies as well as logistics players are set to reap the immediate benefit of this law. Commodity prices are a double-edged sword; while the crash in prices helped bring down input costs of companies, commodity producers saw a steep erosion in their revenue. Stability in commodity prices is another theme that we dwell on. The ability of the Centre to sustain the momentum in reforms will determine if the sectors such as infrastructure, real estate and power are able to get back on their feet.

FPI prop? Liquidity, especially from foreign portfolio investors (FPIs) is another factor that has supported equity prices. These flows have stabilised in the last six months after some steep outflows in January and February 2016. Net FPI inflows to date are $6.18 billion; 30 per cent higher than the flows received in the corresponding period in 2015.

But India is not the only country at the receiving end of the FPI largesse in 2016. According to Bloomberg, other emerging economies such as South Korea, Taiwan, Thailand and Brazil have also received more than $3 billion so far this calendar. A comparison of the performance of various global equity markets also shows that other emerging markets have done far better than India. For instance, Brazil’s Bovespa is up 64 per cent so far this year and Russia’s RTS is up 27 per cent in dollar terms.

This implies that the flows received by India could mainly be due to foreign investors pumping funds into global emerging markets. These flows will be influenced by the unfolding of Brexit, once it happens. The US Presidential election scheduled in November and the pace with which the Federal Reserve pushes through further rate hikes could affect these flows. However, with other central banks such as the Bank of England, European Central Bank and Bank of Japan making it apparent that they intend to continue their easy money policy, liquidity from the FPIs is not likely to dry up anytime soon.

Stable Commodities: Relief for producers

Cleaner balance sheets: Less Indebted India Inc

One nation, one tax: Leg-up from GST

Good monsoon: To boost rural demand

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