Valuations look attractive compared to the US equities. They are cheap versus bonds. Compared to emerging markets (EMs), Indian equities look expensive, but its RoE (return on equity) and growth is higher versus EMs. There is nothing to suggest that markets are at extreme levels. The growth cycle is turning. Between 2003 and 2007, we had 40% compounded annual growth rate (CAGR) in Nifty earnings. Over the next five years, it is not impossible to imagine earnings CAGR at 20%. When you get growth upcycle, the multiple and the market tends to go higher. If one takes a five-year view, the Nifty could easily triple from here.

From a 3-5 months standpoint, there is uncertainty and likely volatility around GST implementation. The market will get worried if there is a global event simultaneously. We have had a 17-18% move on the market year-to-date, it is unlikely we will get a similar return in the second half. It is probably be in single digits.

GST will take 3-4 months to settle down. The government has been on the side of caution with respect to the rates. They also do not know the degree of compliance that will come through. The government is keen on not missing revenue targets. In all likelihood, they have under-estimated the revenue potential. Come next year, we may actually see lowering of rates. As compliance improves, confidence to lower rates will increase. I also believe that we will not have so many rates. The reason why we have so many rates is transitioning from 100- odd rates to 1 rate would have been practically impossible. It will take 2-3 years even for the rates to settle down.

In 12 months, the private capex cycle will see an inflection. Utilization rates, which are in the low 70s, will be in high 70s by the end of the year and mid 80s by end of 2018.Meanwhile, M&A will pick up. The government capex is already happening. The infrastructure capex is actually doing quite well. Currently, the private capex is very weak. At the peak in 2008, the private capex was 18% of GDP and now the 12-months trailing number is 6%, a third of that. The government capex at the peak was around 9.4% and this year it will be at 9.5%. The private capex improving to 9% in next two or three years is possible.

Jobs and credit are lagging indicators in the economy. As animal spirits come back, people will start hiring and spending money and they will start taking credit. First, you will see growth turn and then you will see credit growth turn. Then you will see jobs also turn. Revenue growth has picked up in the last four quarters and is now running in the low-teens, about 12%. Margins have just started picking up now. Therefore, you will see better profit growth and as that happens, corporate sector will start feeling better about itself, start hiring more people, committing more costs, putting more capex to work, and taking more credit.