India’s GDP growth has been decelerating from near 9% to sub 5% levels in the last few years. Although, global financial crises had a major impact on the domestic economy, other factors such as lack of economic reforms, allegations of corruption, negative sentiments, etc had a significant impact on the overall business and economic environment. The challenges facing the new government may be summarized as follows:
1.Control of Inflation
2.Revival of Economic Growth
3.Bridging the Fiscal Deficit
The domestic markets as well as global investors would be eagerly looking forward to the translation of the decisive mandate and the promises and the hopes it has generated in to realistic policies over a period of time. The revival in the economy will augur well for the equity markets through higher earnings growth and market performance. We strongly recommend the investors to invest in the equity markets with a minimum 2-3 year time horizon and in a phased manner based on following key factors:
Valuation remain attractive even at current levels, India’s economic growth seems to have bottomed out and would shows signs of revival, investment climate is likely to improve with improving business sentiments, revival of consumer spending & investment cycle and strong FII flows to drive the markets from liquidity perspective.
With a new government in power and with the realization that growth needs would require more favorable monetary policy stance, possibility of a more benign interest rate regime looks highly probable in the coming year. The full budget, which is likely to be presented by mid of June would indicate the broad stance of the government. As we are in the cusp of the next bull run, suggest investors to remain invested in equity with 60% into large caps and 40% into mid cap funds, never the less it is imperative to highlight that a proper asset allocation of debt and equity should be followed to optimize risk and return.
We also remain bullish on sector like Banking considering the fact that it is closely linked to the economic recovery hence 5-10 per cent allocation can be considered in the portfolio. I Continue to recommend Short Term Income Funds and Accrual Funds from a short to medium term investment perspective. I will continue to monitor the developments on inflation and policy front and would update our recommendations accordingly