Despite the recent rally, Jimmy Patel, CEO of Quantum Asset Management Company, views current equity valuations as reasonable and is bullish on the market's long-term potentials. However, Patel cautions that India remains highly vulnerable to “risk on, risk-off” FII trades in 2013, which could cause volatility in the short term. In an interview with Ashley Coutinho, he advises retail investors to invest through SIPs. Excerpts:
What is your outlook for the equity market in the year ahead?
The government has started its disinvestment programme for the current fiscal and has hung the ‘open’ sign for foreign retailers. If foreign investment in insurance is increased, we would see most foreign owners bringing in capital to increase their stake. The banking amendment will pave way for a roadmap towards awarding new bank licences. All this would be a big sentiment boost for the markets.
We remain optimistic about Indian equities in the long run. Despite the double digit rally in 2012, we see current equity valuations as reasonable. We remain hopeful of India continuing to record GDP growth of 6.5-7% over a long term, irrespective of global uncertainties.
One of the positive factors that will work for our economy is the consistent growth of domestic consumption. India is a relatively young country and we are consuming more than before, a trend which is likely to continue in near future. The Indian private sector also has the intent and the managerial talent to tap into this emerging demand. However, the biggest hurdle both public and private players face is the lack of infrastructure and the slow rate of growth in that sector.
What are the global cues to watch out for?
Given the structural long-term challenges that both the US and Europe face, global markets have been volatile. A lot will depend on regulatory and government decisions that the beleaguered countries make and there are no easy answers to solve the problem that developed economies are now facing. Since Indian markets have been reliant on overseas inflows to support domestic markets, we remain highly vulnerable to “risk on, risk-off” trades. In short-term, our markets will continue to be governed by volatile FII inflows
SIP numbers for mutual fund industry have not picked up this year. What is your assessment?
The industry’s AUM corpus has consistently eroded over the last four years and the number of SIPs have been stagnating or declining. But there is no