The Nifty has fallen near 10 per cent, since hitting historic highs of 12,088 points in late May. One of the prime reasons for the fall is the imposition of tax surcharge on the super rich, which also becomes applicable to Foreign Portfolio Investors. Slowing economy, falling auto numbers and US-China tariff wars have only aggravated the situation. Here are 4 reasons to be buying Indian stocks now.
Solid dividend yields
Some stocks have begun looking excellent from a dividend perspective. Take the case of Karnataka Bank, which at a price of Rs 80, offers a dividend yield of near 4 per cent. IndiaBulls Housing Finance at a price of Rs 480, offers a dividend yield of near 8.10 per cent, which is not bad at all.
Coal India could end-up offering a dividend yield of near 7.5 per cent. Dividend yields being offered at the current prices have become very attractive, that some shares are on par with bank deposit interest rates. Remember, that dividends are also tax free in the hands of the investors, which is another big positive.
Cut in interest rates by the RBI
The Reserve Bank of India is all set to cut interest rates this week and in all probability, we would see another 25 basis points cut. Looking at inflation, which remains tepid, we might see another round of cuts very shortly.
As interest rates fall, we might see some signs of revival in the economy. At this stage, things are at a new low. Having said that, there is a possibility that the markets might even dip a little from here, but, that would offer an excellent buying opportunity for those looking at long-term investment. In 2-3 years, we might see a good recovery in the markets.
FPIs may be ring-fenced on tax surcharge
There is a high possibility that we might see a tax surcharge on Foreign Portfolio Investors (FPIs) being ring-fenced. Finance Minister, Nirmala Sitharaman had levied a surcharge on the super rich. This became applicable also to Foreign Portfolio Investors, who were registered as trusts in India. About 40 per cent of FPIs are registered as trusts in India.
Should they be ring-fenced by some new provisions, we could see fresh foreign fund inflows, which could drive stocks further higher.
Broader markets look attractive
On the basis of price to earnings multiples, many stocks are now looking increasingly attractive. In fact, the one-year forward earnings of Nifty companies is now very close to 18 times, which is not very far away from the long-term average.
As earnings recover, we could see a sharp recovery in the markets. Having said that it highly possible that the recovery may take time. The broader markets on the other hand are seeing tremendous value and if you can hold for a period of 1-2 years, we might see good returns going forward.