‘I believe equities remain the best asset class for long-term wealth creation’

1.      Why are stock markets hitting new peaks at a time when the GDP is in contraction mode? Is the rally for real?

Stock markets are forward looking. They work on anticipation of the current and future economic outlook. The Covid impact on the economy was predicted in March and hence the markets corrected. As we stand today, the recovery theme has played out well as markets saw renewed interest for domestic equities from all market participants, including FPIs and portfolio investors. Earnings have backed investor expectations and we believe markets are poised to remain positive sans Covid.

 

2.      Why are foreign investors pumping money (over Rs 1,60,000 crore in 2020) into Indian markets?

India has been a standout economy in the global context. Especially in the emerging market world, strong political stability and a robust recovery cycle has been a beacon for international investors. In the post-Covid world, where the world is awash with central bank liquidity, India has been getting a disproportionate share. As an opportunity, India continues to remain an attractive destination for global growth investors since they are increasingly comfortable with the structure of the economy, policy and regulatory framework. The government over the last five years has actively worked to make India more business friendly and this is now paying dividends.

 

3.      My assessment on the debt market? Have interest rates bottomed out?

Domestic bond yields have followed the operative rate downwards as the RBI and the government have emphasised bringing rates lower through policy action and accommodative monetary policy in an attempt to spur growth. While the money market curve and the 3/5-year space have broadly followed suit, longer dated papers especially corporate bonds have remained somewhat anchored. The recent RBI commentary is a clear indication that the RBI intends to keep rates range bound. Unless we see a huge fiscal consolidation or downward growth or inflation shock, rate cuts look unlikely.

For 2021, I believe investors will be best suited to go up the duration curve which would serve investor needs of a higher risk reward. We anticipate the RBI will maintain rates at current levels over the course of the next year at minimum, post which I believe a gradual rising rate environtent will ensue on the back of a recovery in the economy.

 

4.       The market, Which is at a record high, safe for us (small investors/Retail investors)?

From a grim March to a euphoric November, equity markets have been on a rollercoaster ride, a reminder that equities are a volatile yet rewarding asset class. Small investors have increasingly participated in equity markets through the mutual fund route and through direct stock investing.

The value of the Sensex and the Nifty is just a number. We have seen this time and time again. As India grows, financial markets will rise commensurately to reflect this growth.

As I always say why investing regularly is important. Timing the market rarely works and hence investing is a continuous process which when followed diligently has rewarded investors over the long term regardless of when they entered the market.

 SIP flows have been a testament to this understanding. For the better half of three years now, I have seen unwavering SIP flows.

One must remember that markets have been volatile during this phase. Investors who stick with their investment commitments have reaped the rewards of staying patient. I believe equities remain the best asset class for long-term wealth creation and should form some part of every investor’s portfolio.