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FY15 earnings, which is close to its long-term average. However, there are two adjustments required. The current P/E should be seen in the context of depressed earnings across many sectors, where mean reversion is yet to take place.
We are positive on equity markets and believe that in 2014 we will see the full impact of positives such as oil reforms, a good monsoon, correction in commodity prices and the improvement in the global economy.
The key risks would be a sharp increase in oil price and lack of government stability following the elections.
In 2014, overall rates expectations are likely to be derived from the currency perspective and the Reserve Bank of India may focus on real interest rate enjoinment in order to protect further currency depreciation.
The emerging growth inflation dynamics and the effect of upcoming elections on the fiscal situation will dictate the direction of interest rates. Since the yield curve normalisation has started, the spread between the shorter end and longer end will get reversed. In this scenario, the shorter end of the curve will outperform the longer end.
Investors should increasingly look at global funds for diversification. The industry AUM is very low in this category and investors need to allocate more capital to international funds. We would advise investors not to get deterred by macro noises and invest in a disciplined way. Many a time, the action required is ‘nothing’, i.e, . simply following well-disciplined asset allocation with planned diversification.
* The writer is CEO, Mirae Asset Global Investments (India)