'We are the fastest growing nation in the world. While some inflation in a growing economy is acceptable, thanks to the deft inflation targeting framework of our central banker, we have seen India’s retail inflation (read CPI) under control.'
The year 2018, as per the Chinese calendar, is the year of the Dog - an animal which symbolises luck.
However, the calendar year so far has been far from bringing luck as far as financial asset classes are concerned.
CY2018 on a year-to-date (CYTD) basis, the benchmark equities Index Nifty is flat while the 10-year gilt index has returned 77 percent.
Even gold, an asset class loved by most Indians has barely managed to keep afloat. The saving grace for gold actually was the depreciation in INR which added some sheen to gold prices. The INR so far in 2018 has depreciated by about 12 percent.
This has also led to some paranoia by FPIs (foreign portfolio investors) who have pulled our INR 1 trillion in debt plus equity combined CYTD.
The IL&FS debacle which hit the financial markets towards September also led to perceptions of a full-blown credit crisis which led to some actually believe that this is India’s Lehman moment!
Given the above, many doomsday callers also seem to have written off the Stock called ‘India’.
Indeed as we approach Diwali and Samvat year 2075 there are mixed emotions being displayed by investors. Let me reckon that small bumps on the road do not deem any road unfit to drive.
Likewise, the recent lacklustre performance cannot be extrapolated to conclude that nothing may work for financial markets going forward.
We are the fastest growing nation in the world. While some inflation in a growing economy is acceptable, thanks to the deft inflation targeting framework of our central banker, we have seen India’s retail inflation (read CPI) under control.
This, along with the high sovereign rates (10-year Gsec yield at 7.75%) makes India’s offering on real rates as one of the fastest in the world. This indeed is a big positive given the huge pool of savings we are able to attract as a nation.
Warren Buffet says “do not save what is left after spending, but spend what is left after saving”. This quote is quite profound and even more relevant as the monster called ‘inflation’ eats into our savings.
Therefore there is a need to make investments in asset classes which have the potential to slay this monster. And, that’s where equities tend to stand out.
Hence, it would be useful not to get carried away by near-term market movement. Anyways in today’s times, there is more NOISE than news and more RUMOUR than reality.
Markets going forward would likely be volatile given that we have state and general elections through mid-2019. A lot would also depend on how currency markets behave which would shape up foreign investor behaviour.
On the rates front, we have already seen two back-to-back repo rate hikes, and the repo rate is now at 6.50 percent.
We are formally out of neutral policy stance, which means that if crude oil prices were to misbehave (every $10 rise in crude prices impact CPI by 30-40bps), India Inc. continues to be in a reasonably good shape despite the near-term headwinds.
Key is to have faith in long-term which is how the compounding story plays out. So it's time you stitch up your patience with 'Sui Dhaaga' to ensure the 'Hulchul' in markets do not increase your 'Dhadkan'. Wish you a very happy and prosperous Diwali.Disclaimer: The author is Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company (KMAMC). The views and investment tips expressed by investment expert on Moneycontrol are her own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.