The positive performance of the Indian market so far has been due to major developments in government’s reform and spending habits of the growing middle class.

Government authorities and RBI have begun to take steps to clean up the bank NPA problem which should prove positive for investors over the longer term.

For Frankling Local Asset Management, Asian Equity team, valuations don’t seem to be a concern for now. According to the MD & CIO, local investors have been underinvested in equities. However, recently there has been increase in local investors’ appetite for stocks which have driven the lower end of the markets in small and mid-cap space.

Additionally, the growing middle class has also changed the landscape of Indian Equity Market owing to a growing savings pool thereby propping up demand for equity.

The Market-Cap-to-Indian GDP ratio currently sits around the long term average which could indicate still some more upside for stocks and room for growth.

According to the AMC, consumer discretionary sectors are likely to benefit from rising middle class population which can transform sectors like Industrials and Consumer Discretionary including clothes, entertainment and leisure as spending increases.

Longer term growth over 10 years in both IT and Pharmaceuticals could be much lower than that reported in the past and thus would not bet big on these two sectors. While in the short term agenda for the market is to focus on aftermath of changes implemented by government and wait for earnings growth to accelerate.

l The AMC is also of the opinion that Indian equity markets appear attractive for reasons like 1) Government Reforms, 2) Demographics and 3) growing Indian middle class which is expected to become 2nd largest middle class in the world by 2022 overtaking US.