India starts a new credit cycle

Indian M3 growth has bounced up to 8.8% in the latest release. I think the 2011-2016 consolidation in EM ex-China completed in Q2 last year. The demonetisation drive a year ago pushed back the beginning of a new credit cycle, which is now starting. 

The last real credit cycle India had was pretty much 2003-2008. Starting with the equity markets emerging from a 2000-2003 bear market. During that credit cycle, the equity index more than tripled. In fact, from the bottom to the top it was more like a 6x.

Interst rates in India have been cut significantly below nominal GDP growth, and that loose policy should help start a new credit cycle. 

This time around the starting point for equities is following a big post-Modi rally, so less attractive. P/E ratios are relatively high, and P/B value ratios are not super cheap. For example the Nifty index is on about 3.4x P/B value now versus more like 2.1x in Q2-2003.

The value instead can be found in private credit (NPLs, distressed and new direct lending) and commercial real estate and infrastructure equity.