Outlook 2019-20: Beyond The Election Clouds
1. Equity
Equity is likely to be influenced by 2 factors – the global liquidity and monsoons. Another factor would be an inclination to look at the policies of the new government.
In our opinion if a coalition emerges-regardless of the two major parties, large and multicap as downside risk is less relatively as compared to mid and small caps. Also certain well managed companies in the mid cap space will tend to do well.
If the current government comes in with a strong majority a strong broad based rally is likely to happen on market perception of deepening of reforms.
A strong foundation has been laid by the current government for the next 5 years and hence equity is likely to do better over 3-5 yr tenure.
2. Debt
Liquidity has increased in the banking system on account of formalization of the economy. One has increasingly seen greater tax compliances .Also crude is in a certain range and hence interest rates are not likely to move upwards.
If we experience lower inflation in our country we are likely to see more rate cuts as we have seen in the recent past. However the RBI has been extremely cautious in regards to this situation as Monsoons may be unpredictable and the fiscal may change depending on the policies of the next Government.
Our view is that Interest rates are likely to follow a global trend as has been experienced in the past. Internationally there is a little room at a policy level to cut rates and going by the recent Fed meeting the US economy is likely to slow down and hence rate hikes may not happen.
As interest rates are likely to be lower India is likely to experience a combination of low interest rates/high growth period also called as Goldilocks.
We continue to recommend Liquid funds, short term funds for conservative investors and g-sec funds/ trading for more aggressive investors.
3. Alternate assets
Alternate strategies range from the moderate to high risk.
They broadly encompass
Long-short fund: These are strategies useful in falling markets or rising markets. Taxation is a concern at this end being at the highest tax levels. However many of our client portfolios have experienced lower volatility on account of this being a part of the portfolio last year.
Real Estate Funds: These have been around for some time. They are a medium risk strategy considering that funds have understood the downside risks during the early part of their evolution. Most of these funds focus on residential housing. These are likely to deliver 14-16% post tax per annum as compared to physical real estate delivering a single digit return.
REITS: REITs are at an early stage in the cycle. The best assets are yet to come out of developer’s portfolios. In our view the risk reward is not in favor of being invested in reits.
Startups: They are a high-risk-high return asset class. The taxation blues are going away gradually.
It is useful to be a part of the opportunity if you are willing to lose capital, not that one will. However one needs to be mentally prepared for the same. Forums are a better way to invest in this asset class as they are able to monitor better.
This year looks interesting from an alternate asset as well as a mainstream asset point of view.
