For a while now pessimism has been on the rise. There has been rising “Wall of Worry ” at the moment. The same has been emanating from global trade wars and the noise related to the impending state and general elections back home. While these noises may get louder with time, it becomes more pertinent to look beyond the short term horizon and not get dissuaded by the market movements.
While investors are worried about global developments, the world economy continues on its path of growth and remains seemingly unfazed by the worrisome headlines for now. Forecasts for growth have remained relatively unchanged, albeit with slower growth expected in select regions. The risk of trade escalations still remains as of now, but negotiations are yet to completely play out. Hence, it is better to not arrive at any conclusions.
Despite the much talked about potential trade war, Indian markets have climbed to new peaks. The rise seems to be on the back of conviction in strong fundamentals and a recovery in earnings, which has been much awaited for. Domestic investments remain robust and this has completely overshadowed the fact that foreign investors have been pulling out of markets in the rising interest rate environment.
The consumption story continues to play out as expected and as earnings are poised for uninterrupted growth, prices will now have their backing. Going forward, earnings are likely to dictate the prices but there could be increased volatility during the up coming state and general elections. The elections could also have an impact on the fiscal deficit, but the expected higher revenue collections and reduction in capital expenditure are likely to contain its impact. Inflation is likely to remain in check as of now. The risk to the same could be high oil prices or hike in the minimum support prices which has already been countered by the preemptive measure of increase in policy rates by the RBI.
The government's reforms are set to kick in and provide a catalyst for growth in the upcoming years. All data points suggest that India's growth trajectory is at an inflection point and an enormous size of opportunity awaits across industries witnessing value migration. To our mind, this is an opportune time to invest in equities as India's GDP is expected to double from $2.5 trillion to $5 trillion over the next 6-7 years. Having said, the recent correction in the mid and small cap space provides an investment opportunity in certain niche strategies. For fixed income allocation, we continue to believe to stick to good quality and well researched credit oriented accrual strategies for sustainable returns with acceptable risk. To our mind, setting the right asset allocation and sticking by it helps to achieve long term goals. We are certain that our recommendations will help you overcome “Wall of Worry”. Whichever way the following months pan out, investors that stay invested and show patience through the highs and lows will emerge triumphant.
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