Macro Monday 47 – Major Trading Opportunities In India

19 Mei

Macro Monday 47 – Major Trading Opportunities In India

10 Reasons why you need to pay special attention to India’s economy

Before I start there will be major market opportunities in India that will present over the coming 12 - 36 months in India. As an investor or trader, you cannot ignore this market.

1. India is on track to become the world's 3rd largest economy by 2027, surpassing Japan and Germany (currently India is 5th). This provides a major 3 - 5 year potential investment opportunity in Indian index funds and specific stocks in India.

2. India overtook China as the most populous nation in world in April 2024 (1.435b vs 1.425b).

3. Approximately 65% of India’s population is below the age of 35, and half are below the age of 25. In years to come this will represent a larger innovative workforce with the potential for higher productivity and increased consumer demand from this younger demographic.

4. India has the fastest GDP growth in the world. A minimum of 6% in GDP growth is expected over the next five years, separating it from both the broader emerging market cohort and from slower-growing developed markets. We noted on last weeks Macro Monday that Brazil’s GDP growth was expected to range between 2 – 2.9%, India’s GDP is expected grow at twice this rate.

5. In the shorter term India has a major domestic election concluding in June 2024. Between 1999 – 2019 India's Nifty 50 Stock Index historically tended to exhibit a positive trend six months preceding and following federal elections. A 20.5%+ increase prior to Election conclusion, 3%+ one month after election and 14.4% in the 6 months post-election. Election Season is great for the Indian Stock Market and we are right in the middle of it.

6. India has emerged as a global economic player striking deals with the US, Russian and China, having exceptional relations with all three. India actively participates in international forums and in shaping economic policies. Its presidency of the G20 in 2023 showcased its economic prowess and diplomatic finesse. This all translates into India showcasing that it is in growth mode, but more importantly, that it is economically stable, diverse and reliable.

7. According to Blackrock their emerging market ETF inflows into Indian indexes exceeded 4.4b in 2023 whilst total flows into all other EM countries ETF's combined to only 1.1b, clearly demonstrating a major influx of capital into India ahead of other EM's.

8. Indian equities earnings estimates are predicting a market with potentially prolonged and stable earnings growth. Analysts are expecting general Indian equities to post 13.8% earnings growth in the next 12 months and 14.4% in the next 18 months. Longer-term estimates call for 14.5% year-over-year earnings growth by year-end 2026. There is an incredible opportunity for TA chartist’s and investors to move into individual stock selection with the wind at their backs as the Indian Economy moves into what maybe its golden economic era.

9. Over the past two decades, India’s main stock benchmark, the Nifty 50, has offered 15.0% annualized returns in USD terms, more than double the 6.8% offered by the majority of other global Indexes and this is expected to continue.

10. India has made remarkable progress in reducing extreme poverty. Between 2011 and 2019, the share of the population living in extreme poverty was halved. This trend emulates what China achieved between 1990 and 2011 when they halved the amount of people living in extreme poverty in China. In the decade that followed China became the world’s second-largest economy, surpassing Japan. As mentioned in No.1 above, India is expected to become the 3rd largest economy in the word, overtaking Japan by 2027.

Now that we have a good understanding of this major positive macro-economic trend in India, let’s have a look at some general indices where some great opportunities are present.

Please note that India is firmly on my Radar now and more specific equities charts will be posted as I discover them.

Ishares MSCI India ETF - INDA

The iShares India ETF is an exchange-traded fund that aims to track the performance of the MSCI India Index. This index includes large and mid-sized companies in India's equity market.

Here are the top 5 holdings of the iShares MSCI India ETF (INDA) along with percentage allocations and brief descriptions:

1. Reliance Industries Ltd (8%): Reliance Industries is a conglomerate with interests in various sectors including petrochemicals, refining, oil and gas exploration, telecommunications, and retail. It is one of India's largest companies by market capitalization.

2. ICICI Bank Ltd (5.36%): ICICI Bank is one of the largest private sector banks in India offering a comprehensive range of banking products and financial services to individuals as well as corporate clients.

3. Infosys Ltd (4.41%): Infosys is a global IT consulting and services company that provides software development, maintenance, systems integration, outsourcing, and other technology-related services to clients across industries worldwide.

4. Housing Development Finance Corporation Ltd (3.76%): HDFC is a leading provider of housing finance in India. The company offers various loan products and services to individual homebuyers as well as corporate clients engaged in real estate development.

5. Tata Consultancy Services Ltd (3.23%): TCS is another major IT consulting and services company from India that offers a wide range of digital transformation solutions to global businesses across industries such as banking & financial services, manufacturing, healthcare, retail, and more.

Please note that these holdings are subject to change over time based on market conditions or fund manager decisions, however this is on the 2024 prospectus. These could be good starting stocks for investors seeking to pick individual stocks in India as they have the backing of analysts in one of the largest funds in the world.

The Ishares India ETF Chart

SUBJECT CHART ABOVE


▫️ Price has broken to new highs and now bounced off the 21 week SMA.
▫️ A potential parallel channel break out with a target at c. $68.00.
▫️ Good risk reward on a potential trade at 4:1. Entry here at $52.97.
▫️ You could raise the stop to of approx. $50 and make it an RR 7:1.
▫️ The DSS Bressert appears to be crossing and about to move upwards but this is not a guarantee yet. This outcome would be ideal.
▫️ Price could revisit the breakout point at c. $50 - $51 which would be a more ideal entry but given the positivity in the Indian market, election season, the fact we are making new highs and are above the 21 SMA, coupled with a DSS Bressert cross looking likely, this is a very reasonable long term set up.A potential parallel channel break out with a target at c. $68.00.
▫️ Good risk reward on a potential trade at 4:1. Entry here at $52.97.
▫️ You could raise the stop to of approx. $50 and make it an RR 7:1.
▫️ The DSS Bressert appears to be crossing and about to move upwards but this is not a guarantee yet. This outcome would be ideal.

Price could revisit the breakout point at c. $50 - $51 which would be a more ideal entry but given the positivity in the Indian market, election season, the fact we are making new highs and are above the 21 SMA, coupled with a DSS Bressert cross looking likely, this is a very reasonable long term set up.

India NIFTY Mid Cap Select Index - NIFTY_MI

The India NIFTY Midcap Select Index is a stock market index that represents the performance of 25 mid-sized companies listed on the National Stock Exchange (NSE) in India. Stocks are selected from the Nifty Midcap 150 index based on availability for trading in the Futures & Options segment, market cap and average daily turnover. Stock weights are based on free-float market capitalization.

Here are the top 5 holdings of the NIFTY Midcap Select Index along with percentage allocations and brief descriptions:

1. Indian Hotels Co. Ltd (7.1%): IHCL and its subsidiaries bring together a group of brands that offer a fusion of warm Indian hospitality and world-class service. These include Taj – the iconic brand for discerning travelers, SeleQtions, Vivanta, Ginger, and amã Stays & Trails.

2. Persistent Systems Ltd (5.69%): Persistent Systems is a global company specializing in digital engineering and enterprise modernization services. They offer solutions in banking, financial services, healthcare, life sciences, and technology sectors.

3. Cummins India Ltd (5.65%): Cummins designs, manufactures, sells, and services diesel and alternative fuel engines, generators, and related components. They are known for their innovation in power solutions and corporate responsibility.

4. Lupin Ltd (5.40%): Lupin is an Indian multinational pharmaceutical company and one of the largest generic pharmaceutical companies by revenue globally. Their key focus areas include pediatrics, cardiovascular, anti-infectives, diabetology, asthma, and anti-tuberculosis.

5. Housing Development Finance Corporation Asset Management Company Ltd (5.21%): HDFC AMC operates as an investment management firm, offering portfolio management and advisory services to individuals, institutions, trusts, private funds, charitable organizations, and investment companies in India.

Please note that these holdings are subject to change over time based on market conditions or fund manager decisions, however this is on the 2024 prospectus.


The Chart



▫️ The India NIFTY Mid Cap Select Index chart is more promising than the Ishares MSCI India ETF.
▫️ There is a defined upward channel under which the 21 week SMA is providing support.
▫️We have broken recent highs, local resistance and a have a DSS Bressert Cross turning up. All three are bullish signals.
▫️A great risk reward set up is available here at 11:1. You can alter this to suit your risk tolerance or how long you want to remain in the trade. I would be inclined to lower the stop because the RR is weighted heavily to the upside.
▫️It is possible that we get a retest of the breakout area also, but given the DSS Bressert Cross and upwards momentum, I lean more directly bullish.

Indian Rupee (INR) Currency Risk
There is a currency risk with the second trade in the NIFTY Mid Cap Select Index as it is denominated in the Indian Rupee (INR) which has been on a long term decline against the USD since Aug 2011. If we were to move to the bottom of the current long term pennant we could lose c.5% in currency devaluation in this trade. This could happen over a couple of months, so its something to keep an eye on.

Here is the INR/USD Chart for reference:



Summary:
There is a unique opportunity to make significant returns from one of the largest and fastest growing countries in the world.

I listed 10 reasons why India's economy has major promise:

1. Projected to 3rd largest Economy by 2027
2. Largest Population in the world (since Apr 2024)
3. 50% of population are <25 years of age, 65%<35
4. Fastest GDP growth in the world at 6%
5. Election Season = 14 - 17% return historically
(within 8 months of current juncture in May 2024)
6. India's presidency of the G20 in 2023 showcased its economic prowess and diplomatic finesse.
7. Three times more capital flowing into India ETF's vs other emerging market ETF's
8. Analysts predict 14.5% YoY growth in Indian Equities.
9. Over the past two decades India's Nifty 50 has offered 15.0% annualized returns in USD terms
10. In India the share of the population living in extreme poverty was halved between 2011-2019

We then looked at two India Indexes that are looking very positive and have a great risk:reward trade set ups in the NIFTY_MI and the INDA. We also covered off some of the indexes individual holdings as these might be worth looking at.

Finally we created awareness of the currency risk that exists on the NIFTY_MI chart. If we want to take advantage of this blooming economy in more specific and targeted ways, we will likely need to trade in the Indian Rupee INR at some stage. So we need to be familiar with the chart and the currency. We projected that it could decline by 5% against the dollar over a 6 - 12 month period so this should be factored in. This is not a prediction. It could show strenght against the dollar and break out of its downward pennant. Time will tell.

All these charts are available on my Tradingview Page and you can go to them at any stage over the next few years press play and you'll get the chart updated with the easy visual guide to see how the South America market has performed. I hope its helpful.

PUKA