Longer term metrics on the economy and earnings growth continue to remain positive.
We continue to expect elevated volatility levels in the equity markets and hence advise investors to look at equity allocations from a medium to long-term investment horizon.
Market sentiment is currently negative globally. Equity markets faced stiff headwinds largely from global factors this month. Local factors including the unearthing of the PNB frauds have also added to this negativity.
In our opinion, all of this is short-term in nature. Longer term metrics on the economy and earnings growth continue to remain positive.
Company results for Q3 FY 18 have seen significant improvement across sectors the highlight being a recovery in the consumer businesses and housing sector, both partly helped by the low demonetization base.
Consensus NIFTY earnings also did not see any negative commentaries, highlighting that there is confidence in a likely step-up in growth going forward. Improving GDP growth and back to back strong IIP numbers point to a revival in manufacturing.
We continue to expect elevated volatility levels in the equity markets and hence advise investors to look at equity allocations from a medium to long-term investment horizon. Systematic investments into equity products could also help investors ride out short-term volatility.
The US hiking rates do raise costs of borrowing across the world since the US Dollar is the world’s reserve currency. Re-pricing of equity risk premia is likely to play its part in keeping markets volatile in the short term.
Fundamentally, India is looking at a trio of positive factors, Strong GDP growth, Revival of corporate profits and stable inflation.
If US 10-Years G-Sec trends and stays above 3 percent which very likely given higher inflationary pressures in next 12 months, the carry trade would likely unwind as the cost of money increases.
This would definitely have some indirect pressure/volatility on the Indian markets as FIIs re-allocate assets.
As a philosophy, we have consciously stayed away from PSU stocks especially PSU banks. Our philosophy consciously targets companies with strong earnings growth and sustainable business models.
These qualities in our opinion are key ingredients for long-term wealth creation. PSU banks currently do not offer these attributes and hence it’s not the core part of the portfolio.
The recent budget announcements relating to rural, agriculture and healthcare are positive for growth in general and for these specific sectors of the economy.
We continue to believe in:
a) Rural consumption story that is expected to play out over the next few quarters. We believe that rural centric policies are likely to be undertaken in the run-up to the 2019 general elections, which will bode well for rural spending for the next 12 to 18 months.
b) private banks are looking attractive
c) NBFCs who have strong ALM practices, Auto/ Auto ancillaries & the consumption basket. Many companies in this sectors also offer opportunities to play the rural themes.
Volatility is a friend of the long-term investor. While equity markets are volatile in the short run, they tend to follow earnings performance in the long run.
The Indian economy as highlighted above is the fastest growing large economy in the world. With the revival in the Indian corporate sector, the long-term potential of equities continues to look attractive.
Systematic investments offer a prudent yet simple mechanism for investors to ride the volatility. SIP’s help ride the downturns without investors facing the risks associated with timing the markets.
Asset allocation is critical to building a sustainable long-term portfolio. However, investors who do not understand financial planning should take professional advice rather than invest in an ad-hoc manner.
Investment advisors take a holistic approach to investing based on the risk profile and the investor`s goals keeping in mind the market environment. Each asset class offers its own set of merits and demerits and should not be ignored while building a financial plan.
Rising interest scenario is generally good for bank NIMs as loans get re-priced immediately with an increase in MCLR while deposit re-pricing happens with a lag.
Banks enjoy pricing power as demand for credit improves and hence are able to pass on any increase in the cost of funds. Also, rising interest rate scenario is backed by an increase in CAPEX - as of now brownfield CAPEX is happening while greenfield CAPEX is yet to pick up.
The minutes of the February MPC meeting reinstated the cautious approach as inflation uncertainty has increased.
Amid this increased uncertainty, possible closure of output gap with improved growth also appears to worry a few members. While the tone RBI policy earlier last month was neutral, the hawkish tones of the MPC minutes suggest a possible increase in interest rates in the H2 FY19.
MORE WILL UPDATE SOON!!
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