India remains a favoured market among institutional investors, given the structural improvement expected in the economy in the medium term, driven by government reforms and recovery in the investment cycle,
says S Krishna Kumar, head, equity, Sundaram
MF. In an interview with
Ashley Coutinho, he says the key mantra in the market right now is to stay invested. Excerpts:
Equity markets have seen a significant uptick since September last year. Will we finally see MF investors coming back now?
Valuations are quite reasonable at around long-term averages, considering the fact that this is the first year of the impending economic upcycle wherein one is looking at a 16-18% earnings CAGR for the next 3-5 years. Indian macros have and are showing improvement and this places the country very favourably in the EM landscape. FIIs have been actively increasing exposure over the year while domestic investors have started to come back in the last four months.
A historical analysis of their behaviour shows that the confidence level increases with a year of strong positive returns. The household savings in financial assets, particularly in equities, has been at decadal lows and we expect this trend to reverse in the medium term, pushing in over $10-20 billion p.a. into equity markets. The key mantra in the market right now is to ‘stay invested’.
What is your outlook for the equity market in the year ahead?
Corporate earnings have bottomed out last year and seem poised to settle into a high teen’s kind of growth. A cyclical uptick in the economy in the backdrop of an improving global growth outlook is expected to get clearer over the next 3-6 months.
India remains a favoured market among institutional investors, given the structural improvement expected in the economy in the medium term, driven by government reforms and recovery in the investment cycle. The economy seems on track to move into an accelerating growth phase over a 3-5 year period.
The near-term event risks remain the weak geopolitical issues in Ukraine, Iraq and Gaza. Global markets are also going to be impacted by the tightening cycle in the US on the back of a strengthening economy, which could create short-term volatility. In the medium term, investors should look forward to a 20-25% p.a. CAGR equity returns, depending on the portfolio positioning and inherent risk.
What is your assessment of Q1 results so far?
As expected, defensive growth sectors like software, pharma,