Formalisation of economy, tech-led changes in biz likely to have long-term impact
Guest Column: Saravana Kumar, CIO, LIC MF

In the last 12-15 months, the Indian macro environment witnessed major adjustments starting with demonetisation followed by the implementation of GST and then strengthening of crude oil prices by the end of the year. Furthermore, the squeeze in global liquidity, Fed tightening and lower government securities yield differential between India and US have induced a lot of volatility in the market. Over the last 12 months, while FIIs have been net sellers for five months, Domestic Institutional Investors (DIIs) have been net buyers for 11 months, decisively holding the markets.

Most of the corporates have signaled an optimistic outlook for the next fiscal year. The IT sector witnessed a pick-up in deal wins and technology spending prospects by customers. Private banks witnessed strong loan growth and stable-to-improving asset quality trends. Margins have compressed for many banks, led by transition to MCLR based lending and continued pressure on yields due to increased competitive intensity. In infrastructure, we have seen early signs of ordering as well as execution mainly as lingering impact of GST recedes. Strong global commodity prices have supported earnings of metal companies. We believe the formalisation of economy and technology-led changes in the businesses is likely to have a long-term impact.

While macros will have an impact on the investor sentiments in the short term (which in nature are unpredictable), micro level business changes could create opportunities. Overall, we are not focusing on the market performance from a short-term view as we believe there are opportunities to benefit from the major trends in the business environment and that is where wealth creation opportunities could be found. The encouraging trend in tractors and partially in two-wheelers (2Ws) as well offers visibility on the expected rural demand recovery. Given the expectation of rural recovery, we believe companies having rural exposure to their sales mix. We also remain bullish on industrial commodities. We believe that in a rising interest rate scenario, banks with higher CASA deposits would likely to be better off. It is expected that earnings of various NSE 500 corporates would improve compared to the last 20 quarters. Improvement in the corporate earnings would attract the domestic as well as global investors into Indian equity market.

In debt market side, the rising bond yields scenario, investors have to cut down the tenor of debt duration investments. Moderate type investors can look at short term debt funds and liquid funds. Fixed maturity plan (FMP) is also a good option.