Lastly emerging markets have also turned attractive.
All factors are pointing to an increase in global trade in 2018 which
should augur well for emerging markets like India.
Sunil Subramaniam
Sundaram Mutual Fund
Today,
we stand at an inflection point whereby there is a high probability
that the economy, and the markets will shift a gear higher in the year
2018.
The global macros are now more favourable than what they
were a few years back. People are reasonably baking in US rate hikes
(probably 3-4 hikes next year) and this seems possible given the fact
that economy has expanded at a 3.3 percent pace, which has been the
strongest since 2014.
The US unemployment rate has fallen to 4.1
percent which points to the economy is in a very healthy condition.
People are also keenly watching Donald Trump’s tax cut plan passing
through by end of the year.
Japan
has also continued its GDP expansion and Europe macros also look good
given its latest prints on manufacturing orders growth and robust PMI
data. Bank of England also hiked rates for the first time in 10 years,
denoting healthy growth in the country.
Lastly emerging markets
have also turned attractive. All factors are pointing to an increase in
global trade in 2018 which should augur well for emerging markets like
India.
As regards our domestic economy, we have to be a bit
cautious given higher inflation worries and consequently higher interest
rates. Back of the mind, crude oil prices are also causing worry edging
to a higher range of $65-$70 a barrel.
We also have to watch
credit demand revival from corporate banks and commencement of lending
by the PSU’s post recapitalisation which could signal a revival in
private capital expenditure.
Given that capital expenditure by the
Govt. has already been underway over the last couple of years the
joining of forces by the private sector would certainly boost
infrastructure spending and with it economic growth.
On the
interest rate front, RBI may be on pause mode until the middle of next
year unless something drastic happens in either direction. Overall, with
the major policy initiatives like demonetisation and GST out of the
way, we look set for a higher trajectory in GDP growth and other
metrics.
The equity markets would increasingly look at earnings
delivery given the fact that valuations are robust based on trailing
returns. While structural liquidity continues to provide comfort
earnings growth has to happen in order to move the markets to the next
leg of the upswing.
We also believe that the recent Gujarat
election verdict is a positive as the drop in seats by the ruling party
would make it work doubly harder to ensure that it does not suffer even a
minimal loss of support from the people.
It also indicates that
GST and demonetization have largely been taken positively by the people
which should ensure minimal dilution of the development mandate.
Within
equities, there is a hunt for value across market capitalizations as
well as sectors. We believe that investor should be invested for the
long-term and be present across the cap curve with a major part of their
allocation in mid and small cap space as historically this category has
been able to deliver wealth-creating returns over the long term as
compared to other categories.
We are especially positive on the
rural prosperity theme as we believe that the policy initiatives and the
increased and focussed spend on rural will spur growth.
Similarly,
the consumption theme is another we are very hopeful about given that
the structural change in consumption patterns on the back of increased
income is still in its infancy. Also, growth in the rural economy would
act as a further booster for growth in consumption.
We strongly
believe that we are still in the initial stages of a long-term bull
market which can span 10 to 15 years and so investors should stay
invested and keep adding on to their positions through SIPs and STPs.
Disclaimer:
The author is CEO, Sundaram Mutual Fund. The views and investment tips
expressed by the investment experts on are their own
and not that of the website or its management. advises
users to check with certified experts before taking any investment
decisions.
09 Jan 2018, 11:06 AM