MD, Kotak AMC
Shah has over 25 years of experience in capital markets. He has managed funds across equity, fixed income securities and real estate. He has studied at the Institute of Chartered Accountants of India. Shah has also co-authored a book - 'A Direct Take'. His dream is to go backpacking with his better half some day.

Next stop elections! Market will pay a premium for political stability

An investor who is now overweight on equities can choose to invest through SIP in equities.

The Budget has provided for direct income support to farmers on one hand, and offered income-tax rebate to middle class taxpayers on the other.
The interim Union Budget is behind us now, and elections ahead of us. Pre-budget, markets were jittery about the measures that the government may take, and the hole that the fiscal deficit wouldcreate. But to its credit, the fiscal deficit has been kept largely in check.

The Budget has provided for direct income support to farmers on one hand, and offered income-tax rebate to middle class taxpayers on the other. Solely from a financial standpoint, this dual income support to both rural and urban consumers may lead to an uptick in FMCG demand. While this may lead to some money circulation, the current low inflation levels would provide some headroom.

The market’s focus then shifted to the monetary policy. Given the low inflation, high real interest rates (around 300 bps), and trust deficit in the NBFC sector, there was a case for rate cut, and RBI has delivered on that. It actually meant RBI shifting from second gear to immediate reverse (rate).

In this context, a benign stance with guidance for future rate action would help soften the market mood. Also, the debt market is looking forward to government’s borrowing liability and issuance calendar. The pressure of the off-Budget borrowing size is playing on the investor’s mind. The monetary policy statement may now help ease some of these concerns.

Currently, the credit market is also concerned about the rumours floating regarding viability of some HFC(s). On our part, we have done our due diligence and have obtained sufficient confidence in serviceability of our exposures. We believe business models of these HFC(s) are robust and is supported by sustainable cash flow. At that, (at least in our case) the exposure to their issuances is of around 3-9 month maturities. This limits our credit and duration risk exposure.

Having said that, the wide credit spreads currently available seem quite attractive from an 18-24 month horizon for aggressive credit investors.

From the equity market’s stand point, the outlook surrounding the elections has become crucial. For now, there is much wariness in the market about the general elections, which may cause some volatility in the short term. Post election, the market may be willing to pay a premium for political stability. Other than that, FII flows into Indian markets may also affect market trend. But eventually it is the outlook on the earnings growth, which will drive the market sentiment for much of 2019.

Taking a longer-term view, the Finance Minister has stated that the Indian economy may reach the $5 trillion mark in five years, and $10 trillion in next eight years. In other words, if things go well, India would be adding $8 trillion to its GDP in next 13 years. That, I believe, is a lot of growth opportunity. The size of how much you make out of this opportunity will depend on the quality of your investment decisions and, perhaps, a slice of luck.

For now, an investor who is currently overweight on equities as an asset class can choose to invest through SIP in equities, or deploy the lumpsum into the BAF (balance advantage fund) strategy. This would mitigate risks effectively and at the same time would not put one at risk of losing out on any sudden change in the upward momentum.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of




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