Boom in 2022

Hello friends. How are you doing out there? This is Vijay Bhambwani here and in this video I am going to present with evidence, with facts, figures and numbers, why the market in India for the next few years will be optimistic, will be bullish.

Of course, in the near term, corrections will come and those corrections will be volatile because the rally has been volatile but net-net, I'm gonna give you hard numbers as to why it's going to happen.

My last week's video was about a big bang banking reform and a part of it was that the stock markets were going to go from T plus two, to T plus one. This can only be possible when the banks start quickening the rate at which they transfer money from point A to point B.

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Here again, some people misconstrued that 1.5-2% population of India invests in the market and this can't really help the GDP. If you check the title of the video itself, I have called it a big bang banking reform. There's a whole lot of a population out there which neither has a net banking available to them nor are they savvy enough, and they still depend on cheques etcetera.

So when the clearing happens faster, as a business owner, I know that if I deposit a cheque in the bank and in the old regime, if it's going to take Wednesday evening to credit my account, if banks get speedier and credit my account instead of Wednesday, on Tuesday itself, that's a big relief. I can rotate my money faster and the GDP grows.

Now this news that I am going to tell you in today's video is all about a trigger that is even bigger, that is something which has a multiplier effect on the economy.

Friends, I've very often talked to you about the bond market for the simple reason that the bond market is the fountain head of finance or the source of money for the other asset classes, which is equities, currencies, and commodities.

Now, obviously, if you open the tap on the money supply, a lot of money flows out and the market goes up. Now, from 2022, the Indian bond markets may be listed in the global bond indices, and currently there are three global bond indices, which is the JPMorgan GBI-EM. GBI stands for global bond index. EM stands for emerging markets. The second one is Bloomberg Aggregate Index and the third one is the FTSE WGBI, the World Government Bond Index.

Now, why does it matter if Indian bonds are going to be listed, Indian bond markets are going to be listed in the global indices? You've seen many videos from me about ETFs. How does a fund manager replicate the ETF performance? Buy buying the same number of stocks in the same weightage that they are in the Nifty, in the case of Nifty 50 ETF.

So now, if there is a certain weightage of Indian bonds in the global bond indices, fund managers will buy Indian bonds in that same proportion to be able to keep up with the returns of the global bond index. Which means FII money starts coming into India

Why should the bond markets be excited and why you, as an equities, currency, commodity, trader or investor, should be excited?

We will talk about details, so let's fold up our sleeves and get our hands dirty with digging the dirt for more details.

Currently, FIIs are holding only 1.9% of the bonds issued by the government and the remaining are held by commercial banks because they hold bonds in their SLR and CRR and that ties up their money, which would have otherwise been given for lending in the economy.

Let's take a look at comparative numbers of other economies. Turkey's bonds are held to the extent of 8.7% by FIIs. Chinese bonds are held a little under 11% by FIIs. Poland, a little over 15% by FIIs. Indonesia, a little under 23% by FIIs. South Africa, 34% or little under 35% by FIIs. Over 41% of Mexican bonds are held by FIIs and over 44% of Brazilian bonds are held by FIIs.

Now, what does it do for the FIIs to come and invest their money in India? I'm not just saying that as a proud Indian which I am but I'm also talking like a money market player who is hard-nosed about yields, about returns, and comparative analysis.

Recently, Peru, an economy which is far smaller and far weaker than India raised tens of billions of dollars from global bond investors simply by raising the coupon rate, the coupon rate is the interest rate, to 3%.

Now there are hedge funds and overseas investors who are willing to give a right arm and a leg to get returns, which are positive because many other bond indices, many other sovereign bonds are either giving very, very small returns, zero returns, or even negative returns.

India is still giving 6.1% and above in the sovereign bonds. We're a robust economy. We are far better than Peru. We have far better than South Africa. We are far better many other countries which are merely offering a high rate of interest without the inherent strength in their economies. We have inherent strength in our economy.

So my guess is FII money will start to come in and obviously they will bring in dollars, which means the rupee becomes stronger versus the dollar. Hey, when the nation's currency becomes stronger then nation becomes stronger. I'm not just talking about sentiment. I am going to give you numbers.

Since independence, India has been a net importer of foreign goods. Two thirds of all our imports are fossil fuels, which is natural gas and crude oil. Now if energy prices are remaining constant abroad, but if the rupee is to fall against the dollar, if the rupee was to weaken against the dollar, our imports become more expensive.

But if the rupee strengthens against the dollar, our imports become cheaper and guess what? When petrol prices fall, everything from your fruits, vegetables, milk, eggs, grains, pulses, etcetera, all become more affordable. So inflation comes down.

When inflation comes down, there's more money in the hands of people and average citizen, who goes out and spends and helps the economy to grow.

Remember, the banks which are by force, the largest investors in the bond market, now will have help from the FIIs, so they can use this money which they would have otherwise invested in the bond market for lending to businesses, which can generate employment pay taxes, which again means more money to the government, and there are other ancillary benefits as well.

If money is coming into the government coffers through FIIs, you need not worry too much about meeting deadlines of PSU disinvestment. Maybe some really, really plump PSUs need not be sold because your money, monetary inflow targets are being met. So you're not pledging or selling your other assets because bond markets are raising money for you.

Another benefit here. Now, since a divestment is not really happening but money is coming in and remember, bond money is not quick money. It's not like stock markets where it comes on Monday and flies out through the window in the next. So this is patient money and it's not really hot money. So the Indian rupee will not gyrate too much. The volatility in the currency will basically go, and the strength in the currency will make the economy a lot more robust.

Now controlling inflation, which means household savings are going to go up and the trickle-down effect will obviously come to the stock market, will come to our commodities market, which would mean that our imported prices of a gas and patrol diesel, etcetera will work out to be cheaper. Probably your gas cylinder etcetera will be more affordable. Your petrol or diesel refill at the petrol pump from next year onwards, once the money starts coming in, will also be a little less and therefore inflation, which I call the misery index, might just come down.

These are all signs of an emerging India, a stronger India, where money is waiting in the wings to come inside. But like I said, the listing will happen in 2022. So the money that will come is going to come from next year onwards.

This is the big picture announcement. This is us for somebody who is looking at the macro view of things. But I can assure you that the estimates of the most conservative investors say that in the first year anything between US$20 bn to US$ 40 bn will come in and anything between US$175 bn to US$250 bn will come in the first 10 to 12 years. Do the math. This is not a small number and now I come to the crux of the matter.

The honourable Finance Minister Nirmala Sitharaman in the budget speech of 2021 said that the RBI needs to raise Rs 12 lakh crore from the bond market in the fiscal year 2021-22. It's been a mid-September as I record this video, and the target is not completed. Obviously, it's annual target and the year will end like in India it does, the financial year ends on 31st March 2022. So in early 22 if Indian bonds are listed in the global bond indices, this target can be easily met, which means the government's working capital requirements are significantly eased.

These are the positive aspects that I, as a market participant, not just as a proud Indian but also as a market participant feels and therefore yes, like somebody commended in my previous videos, you seem to be excited, yes, I am very excited that a both the fiscal and the capital account looks like it's going to be on a surer wicket, a former wicket, a stronger wicket, and who doesn't like bullishness in the markets.

So we as the financial market investors, as Indians, have good news and good cheer to look forward to from 2022. I admit this is a big picture. It will take time, but let's be patient out there and reap the rewards over the long run.

On this optimistic note, I bid goodbye to you, and I would request you, remind you to subside to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about fresh videos being put about here.

Love me, hate me, but keep commenting. I'm welcoming all your feedback with open arms. Help me reach out to fellow like-minded investors and traders by referring my video to family and friends.

I wish you have a very profitable week ahead. This is Vijay Bhambwani signing off for now till we meet in my next. Thank you for your patience. Take care. Bye.