2018 has been an eventful and challenging year filled with lots of volatility driven by both macro and micro events. Global events and occurrences such as volatile oil prices, trade protectionism and a strong USD kept all the emerging economies on tenterhooks. Closer home, India too witnessed events such as liquidity concerns due to the IL&FS debacle, rising PSU bad debts, weakening rupee and the recent state elections outcome among many others.
While the bygone year has been difficult and challenging, the way ahead – 2019 looks relatively brighter and better with the recent developments. The three major global events namely the rising oil prices, trade wars and rising US fed rates are in respite currently, giving a positive outlook on the global economy. With the reduction in oil price and a strengthening rupee, the Indian economy stands to benefit at large by managing the twin deficits. IMF (International Monetary Fund) too maintained its positive outlook on India on the back of stable macroeconomic policies and the various structural reforms bearing fruits.
With all the indicators favoring India, the probability of India gaining a steady improvement in 2019 is relatively higher. As it is said, Consumption is the engine of our economy; the key driver would be private consumption, driven by spending in rural infrastructure. Post the IBC (Insolvency and Bankruptcy Code), bank balance sheets are getting rectified and this should further improve the economy as a whole. With respect to earnings, while there may be some initial hiccups, I am sure they are on the road of recovery. Largely, broader earnings growth for market would be assuring and supportive. I also
expect GST to get stabilised and a further reduction in rates. This may not only boost the consumption but will also increase the overall tax base. I won’t be surprised, if there is a move for reduction in personal income tax post the General Election Budget proposal.
Given the fact that tax base is rising and a need to further rise, it could be worthwhile extending the benefit given to corporates to individuals as well. This move may not only boost the consumption across the country, but could also help in sustaining the overall economic growth.
With all the positivity and optimism in the Indian market, I am sure that Foreign Portfolio Investment (FPI) inflows will resurrect and domestic inflows in the form of SIP book-size will reach further heights. While foreign pension funds are in a beeline for Indian stocks, our own NPS (National Pension Scheme) and EPFO allotment may also see an increased allocation with recent tax benefits. Mutual fund Industry is expected to continue to grow considerably this year. As I always say, mutual funds are a one stop solution which offers various kinds of products with better risk reward ratio i.e. savings (liquid funds), income (fixed income schemes), wealth creation (equity schemes) and tax savings (ELSS schemes). I must also say that, at all points of time, asset allocation is very important to reach your investment goals. Hence, fixed income products could play a pivotal role in everyone’s portfolio. Given the huge untapped potential of ~Rs. 69 lakh crore which is lying as FD’s in banks (Source: RBI), there is scope to promote mutual fund fixed income products to these investors which not only generates reasonably better returns but also provide tax benefits to investors. This could not only help increase the industry AUM but also add significant number of new customers to the industry.
While all the above mentioned positive indicators are driving the sentiments currently, the upcoming General Elections outcome could play a crucial role for in the way ahead. However, data analysis of market performance that returns in the 6-month period, both before and after elections, have been positive. Ultimately, market performance would be bounded to fundamentals and strength of the economy. As a fund house, we have released our detailed Annual Equity and Debt Outlook – 2019, as a presentation, which is available on our website and in all our branches for circulation.