HAPPY DIWALI & PROSPEROUS NEW YEAR
Date: 14/11/2023
Last year was an extraordinary year at least for India, as most of the asset classes worked very well.
- Equity (small and mid caps)
- Gold
- Real estate
- Fixed deposit
If in last Samvat we would know that US ten years would touch 5 percent, there would be another war ( Israel-Hamas ) with one ongoing Russia-Ukraine and mounting pressure on crude oil, consistent rate hikes in east as well as west also (some nations) and lot of selling from FII’s…..at least we would have not believed that the equities and rupee would have held up so firm. Thanks to prevailing government for keeping the house in order, Indian Public to keep consistent faith on Mutual funds and the most important thing, our demography and rising per capita GDP.
In my last almost 15 years of presence in Financial markets after each good year of Equity markets most of the people are apprehensive of good returns in future years and if the next year returns are poor to negative their belief becomes strong. However there is a history backed by data showing that Equity markets over a period of larger time frame have compounded and by some2/3 % higher than the nominal GDP i.e at least 14 /15 % cagr…..of course with volatility which is never treated as friend while it should be. For people who are believing in asset allocation ( I fall in that camp ) and has made educated decision in equity allocation , frankly speaking the period of holding is forever until one requires money or some fraud in scheme or any catastrophe. If their returns are negative for a particular year or two chance is bright that the return for successive years would be higher…..as economy would have still grown albeit at lower rate and markets returns have to catchup. This may sound simple but history has proved this and we have precedence of this from developed economies like US.
Just to be present and well prepared till the next Samvat lets list down some major know events:
- Outcome of few state election (December 1st week ) ::: this will set the tone until run up to election in India.
- Union Election in India in May 2024 (date yet to be announce)
- USA Presidential Election (somewhere in August or September 2024)
Amongst various other events these will be closely followed for Investments in India. There may be volatility of course but interesting thing is NIFTY (large caps) has not performed in last 2 years and to that extent we are nowhere near bubble zone in at least large caps and for the same reason to say that the rally is over, may not hold true at least in our sense. However sme and micro caps are developing bubbles and one needs to be cautious there, however any sharp correction may provide opportunity to get into decent quality small and sme companies.
Our reading suggest that USA which is already seeing slowdown in many pockets of consumption ( real estate, luxury products) may continue to deteriorate post-Christmas and this will be good reason to bring interest rates down in the run up to Presidential election in USA. Also inflation in US has seen sharp correction and shall continue to fall further supporting the case for rate cut. For us loose monetary policy in US is just a source of more FII flows and risk on. For India there doesn’t seems to be case for rate increase and any increase if any will mostly be forced one followed by US rate hikes to save fixed income outflows and currency depreciation. We see this possibility remote.
In Nutshell the entire equity market is not in a bubble and since small and mid caps have rallied hard the same may not repeat next year and large caps have fair chance to outperform, especially when FII turn positive on India. However an outcome of non BJP victory in union election might result in a major correction and may not necessarily be a buying opportunity ( however the chance is grim ). In order to continue our faith in equity there are some interesting data set presented below.
Strangely we are not even in top 20 gold producers in world but second largest consumer next to China
--CA JAYESH GANDHI Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are an AMFI registered Mutual Funds Distributor.
