2015 witnessed a paradigm shift in investment choice of domestic investors who preferred financial assets over physical assets. This change in investment pattern is expected to gain further momentum over the next few years. A similar trend was witnessed in equity markets with domestic inflows exceeding the foreign inflows for the year. Domestic equity markets reached all-time highs in the beginning of the year, however the last few months witnessed phase of consolidation for domestic equity markets given the global worries.
While broadly the equity markets were range-bound over the year, we believe India is extremely well placed for a faster economic growth, and resultant equity market returns. In fact, despite the recent fall, Indian equities have been amongst among best performing markets globally. India’s relative outperformance can be attributed to significant improvements in the macro economic situation which augurs well for the markets over the long term.
We believe India is in a sweet spot compared to the rest of the world.
Source: RMF Internal Research
In the history of financial markets, there will be very few markets like India which offer these kinds of edges over the rest of the world both on short and long term basis.
Overall, we believe in a world where growth is scarce, deflationary concerns are increasing and interest rates are trending upwards India provides a rare favorable blend of high and rising growth, supportive inflation and downward interest rate trajectory. Indian equities stand out amongst the best placed as a) Indian macro recovery would certainly gain traction in 2016, b) After years of sluggishness; we could witness meaningful sustainable earnings recovery in 2016 as the dual impact of operating and financial leverage plays out positively.
Having commented on the near to medium term market potential, we would also like to point out the long term potential from Indian markets, which should be the fundamental reason why investors should consider investing into Indian equities.
Excessive Fed tightening and Chinese hard landing continue to be the major risk in 2016. Global inflation surprise on either side, worsening global geopolitics, EM debt deflation and weather disruptions are some of the other events which will be keenly tracked by market participants.
We are focused on domestic recovery themes like urban discretionary, short cycle capex which can gain meaningfully from the expected revival. Urban Discretionary Spending, has started to show signs of revival in the festive season. Positive tailwind of lower inflation is driving a recovery in consumer sentiment in some categories and will have a positive impact on these investments in the fund. Organized retail, Hospitality Sector, Media and Entertainment sector are the key focus areas within the Urban discretionary theme. The short cycle capex segments have also seen in improvement in few areas like roads and power transmission. sector. Newer areas like Defence have started to contribute to order book improvements.
With the expected transition of domestic savings from physical to financial assets, financial services space especially private sector banks, NBFCs etc. can gain meaningfully. Changing consumption habits of the Indian middle income households can offer interesting plays in emerging areas like hospitality, brands etc. FMCG, Utilities, upstream petroleum are a few sectors we do not have much exposure at present.
Our overall focus is on investing companies with high ROEs or strong earnings visibility with good corporate governance standards, while avoiding companies which are highly leveraged or have fractured balance sheets.
We believe Indian equities offer an attractive investment opportunity given that the earnings are at a cyclical low with many enablers in place which can allow for a sustained recovery. Further given the low earnings base, future earning shifts can be meaningful enhancing shareholder returns. The current market valuations are close to historical averages and there are many interesting investment opportunities across themes.
To conclude, in every growth story, there will always be short-term challenges. However, our advice for investors is to focus on the big picture and while keeping an eye on the near-term events on the horizon, please don’t get carried away by them. We maintain our positive stance on domestic equities and believe the asset class can be one of the best performing over the medium term.
The information herein below is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Certain factual and statistical information (historical as well as projected) pertaining to Industry and markets have been obtained from independent third-party sources, which are deemed to be reliable. It may be noted that since RCAM has not independently verified the accuracy or authenticity of such information or data, or for that matter the reasonableness of the assumptions upon which such data and information has been processed or arrived at; RCAM does not in any manner assures the accuracy or authenticity of such data and information. Some of the statements & assertions contained in these materials may reflect RCAM’s views or opinions, which in turn may have been formed on the basis of such data or information.
The Sponsor, the Investment Manager, the Trustee or any of their respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such data or information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given are fair and reasonable, to the extent possible.
This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision.
None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.
The Sponsor, the Investment Manager, the Trustee, any of their respective directors, employees including the fund managers, affiliates, representatives including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) / specific economic sectors mentioned herein, subject to compliance with the applicable laws and policies.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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