Where do you see markets are headed Do you expect a correction or a further rally
Long-term fundamentals are showing some signs of bottoming out; however. the recent rally may be liquidity-driven. The current account deficit (CAD) crisis, at least from a cyclical point of view, has abated. The cool-off of the US Fed taper may also have been a significant factor for flows into emerging market equities, including India. At the margin, there may also be optimism among foreign institutional investors (FIIs) over elections bringing in a positive change. As things stand today, the broad markets may remain in a +5% to -5% range at least till state election results are declared in early December.
Do you see any uptick in retail participation
There seems to be a younger generation of retail investors and advisors who are generally better informed, more disciplined and appreciate the advantages of systematic investment plans (SIPs) in mutual funds. In short, we are seeing some interest from retail but the amounts are still small.
What has been your reaction to the Q2 results so far
There were some pleasant surprises, especially in the early part of the results season. For instance, the demand traction in North America helped the IT sector and the resilient demand in rural India helped some consumer goods companies. But for others, a stronger dollar and higher debt have hurt bottom lines. In some cases, the full impact of the rupee depreciation is yet to reflect in the costs of raw materials, and in other cases, balance sheet issues remain. Overall, it would be a bit of a stretch to extrapolate this quarter into estimates for FY15. One would prefer to wait for at least another quarter.
Do you see inflationary pressures easing
In the immediate term, growth may take time to recover due to the rise in rates, but for the economy, long-term price stability may be more crucial. The markets will eventually focus on the long-term fundamental improvement brought in by lowered inflation expectations.
How do you see macroeconomic scenario panning out
While there is no doubt that we have averted a crisis on the CAD and currency fronts, it still looks to be a cyclical recovery and hence it may be a bit too early to talk about a favourable macroscape. The Fed taper delay seemed to have helped allocation to emerging market equities, and to that extent, the market may have moved a bit ahead of itself.
What is causing the demand for gold ETFs to fall
Gold ETFs are usually attractive for taxpayers, but in recent times, the restrictions placed on gold imports may have resulted in a discount in the grey market affecting demand for all formal investment channels, including gold ETFs.
What will be the impact of elections on markets What are the other major triggers for markets
With respect to general elections, past data indicates that there is no clear correlation between pre-and post-election market conditions, so it may not be wise to project the current sentiment surrounding the elections to the middle of next year. Decisive election results will create expectations that certain reforms will be passed through and thus recovery is on the anvil, but the more important trigger will be the subsequent actions taken to meet the expectations. The Fed taper is a risk and cannot be ignored.