Softening of interest rates and progress on the reforms front will help Indian equities in 2013, says Akshay Gupta, MD & CEO, Peerless Mutual Fund. Gupta says one will have to keep a close watch on global energy and commodity prices as also developments on chronic fiscal imbalances in developed countries. In an interview with Ashley Coutinho, he says proper asset allocation and periodic re-balancing of portfolio will work well for investors.
What is your outlook for the equity market in the year ahead?
CY12 was fruitful for the Indian equity markets. With Nifty returns of 27.7%, the benchmark has been one of the best performers among key global markets. This was despite the fact that the global markets remained uncertain and domestic macros deteriorated. However, positives came in form of renewed activity on the reforms front and clearing of some key Bills in Parliament, which seemed to have attracted FIIs after July 2012.
We believe that this optimism should be carried forward in 2013. With no major political events for the larger part of this year, one can expect good progress on the reforms front. This should also help improve the investment cycle.
After a year of poor macro-economic data, one can also expect revival on the industrial and GDP growth fronts. Subdued commodity prices and better farm crop should help inflation in trending lower. Lower inflation should lead to softening of interest rates and boost overall growth. Equity market valuations on a forward basis have been reasonable. Thus, if the issues of high current account deficit and fiscal slippages are addressed, Indian markets would tend to get re-rated.
Global cues to watch out for...
Global economies have begun the year on a steady note. Though uncertainties loom large over the long run, near-term macro indicators show signs of revival. The US fiscal cliff problem seems to have been averted in the near term and unprecedented support from ECB keeps the euro zone in a better-than-edgy position. China, too, is showing signs of revival. Key cues to monitor are energy and other commodity prices and developments on chronic fiscal imbalances of the developed countries.
Another important cue is the ongoing monetary easing by developed nations. Any signs or action of 'money printing' coming to an end would adversely impact the global markets.
Do you think the RBI will go for more rate cuts?
Our assessment is that the RBI is expected to reduce interest rates and CRR by