The year 2018 has been an eventful and challenging year filled with lots of volatility driven by both macro and micro events. Global events such as volatile oil price, trade protectionism and strong USD kept all the emerging economies on tenterhooks. Closer home, India too witnessed events such as liquidity concerns due to IL&FS debacle, rising PSU bad debts, weakening rupee and the recent state elections outcome, among many others.
Why 2019 looks relatively brighter?
While the bygone year has been difficult and challenging, the way ahead – 2019 looks relatively brighter and better with the recent developments. The three major global events namely rising oil prices, trade wars and rising US fed rates are in respite currently giving a positive outlook on the global economy. With the reduction in oil price and a strengthening rupee, Indian economy stands to benefit at large by managing the twin deficits.
With all the indicators favouring India, the probability of India gaining a steady improvement in 2019 is relatively higher. As it is said, consumption is the engine of our economy, the key driver would be private consumption, driven by spending in rural infrastructure.
Post the IBC (Insolvency and Bankruptcy Code), bank balance sheets are getting rectified and this should further improve the economy as a whole. With respect to earnings, while there may be some initial hiccups, I am sure they are in the road of recovery. Largely, broader earnings growth for the market would be assuring and supportive.
GST will also get stabilised and further reduction in rates. This would not only boost consumption but also will increase the overall tax base. It would not be surprising if there is a move for a reduction in personal income tax post the General Election Budget proposal.
Given the fact that the tax base is rising and a need to further rise, it could be worthwhile extending the benefit given to corporates to individuals as well. This move may not only boost the consumption across the country, but also could help in sustaining the overall economic growth.
Asset allocation is very important to reach your investment goals
With all the positivity and optimism in the Indian market, I am sure that Foreign Portfolio Investment (FPI) inflows will resurrect and domestic inflows in the form of SIP book size will reach further heights.
While foreign pension funds are in a beeline for Indian stocks, our own NPS (National Pension Scheme) and EPFO allotment also may see an increased allocation with recent tax benefits. Mutual Fund industry will continue to grow considerably this year. Mutual funds are a one-stop solution which offers various kinds of products with better risk-reward ratio i.e. savings (liquid funds), income (fixed income schemes), wealth creation (equity schemes) and tax savings (ELSS schemes).
At all points of time, asset allocation is very important to reach your investment goals. Hence, fixed income products would play a pivotal role in everyone’s portfolio. Given the huge untapped potential of Rs 69 lakh crore which is lying as FDs in banks (Source: RBI), there is scope to promote mutual fund fixed income products to these investors which not only generates reasonably good returns but also provide tax benefits to investors. This would not only help increase the industry AUM but also add a significant number of new customers to the industry.
While all the above mentioned positive indicators are driving the sentiments currently, the upcoming General Elections outcome would play a crucial role in the way ahead. However, data analysis of market performance that returns in the 6-month period both before and after elections have been positive. Ultimately, market performance would be bounded to fundamentals and strength of the economy.
(The writer is CEO of Aditya Birla Sun Life AMC)