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 50-75 bps over FY14. However, this prognosis is based on the present domestic macro-economic data. Since the situation in India is dynamic, both politically and economically, things can change quickly. At present, there is a large corporate spread, which must be utilised to deliver alpha in ones portfolio.
Equity schemes saw outflows for 11 out of 12 months in 2012 and 45 lakh equity folios closed in 2012. What is your assessment of the numbers
Over the past five years, the equity market has not given any tangible returns to investors vis--vis fixed income and gold. Thus, sensing an opportunity loss, every single rally in the market leads to an exit of some of those investors. This phenomenon is natural and can be expected to reverse, once markets improve and move progressively into a new trajectory.
Debt categories gave returns of 9-10.5% in 2012. Which categories will do well this year
This could well be the year for hybrid funds, which are a mix of all asset classes. Fixed income, equity and gold will give returns, but may not do so in tandem. That will necessitate investors to look at hybrid schemes. Fixed income will continue to give 8-10% returns over a period of one year.
What would be your advice to investors at this point in time
Though I may sound clichd, my advice to investors would be to decide on a proper asset allocation depending on their age and risk-taking ability, rebalance their portfolio periodically and invest systematically. Also, they should avoid the extremes of being either fearful or greedy. This may sound like a broken record, but trust me, this works well.