‘Invest in fixed income securities, given the rising rates’

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: The Indian equity markets have supposedly taken a U-turn now. The equity investors as well as those who have invested in equity through ULIP are trying to assess the situation and wondering what course of action they should undertake. FE Investor posed some queries to Jyoti Vaswani, associate director-fund management, Aviva Life Insurance India. Excerpts:

Do you see the political instability and liquidity driven scary valuations to disturb the uptrend in Indian equities? Why?

Political uncertainty does present an event risk. While political upheavals can cause short-term volatility in the market place, the long-term uptrend in equities cannot be impacted significantly by political issues. Most political parties have become almost unanimous at the ground level, on the need for accelerated reform and growth oriented policy regime. Hence, over the longer term, irrespective of the nature of the government at the center- coalition or otherwise- the broad direction of economic liberalisation will remain unchanged.

Liquidity is a key determinant of market directions. Liquidity flows are determined by global as well as domestic factors. India has seen a surge in foreign inflows in the recent past. This has been mainly due to the continued strength of the Indian economy. This strength essentially comes from expected strong GDP growth rate, favourable demographic profile and an inward looking economy.

With exports accounting for around 18% of the GDP, in case of a slowdown in US, the impact on India is likely to be lower. Given this, the long-term trend of equities should remain up, short-term volatility notwithstanding.

What are the global factors that may impact the Indian markets in the long run? How?

A prolonged slowdown in US will have an impact on the developed countries as well as the emerging economies. While India cannot remain immune to any global slowdowns, India’s inherent strengths should result in a marginal impact when compared to the rest of the world. Continued growth in China is also very important for the rest of Asia, as China imports more from Asia than the US.

Rising crude prices will impact India as we import a bulk of our crude requirements and hence will impact our current account deficit.

However, strong forex remittances, strong export growth, along with increasing forex reserves and FDI will cushion this impact to some extent.