No 5 | Company name: HDFC Asset Management Company | Market Cap: Rs 61,469 crore | Price return: 101% (Image: PTI)
HDFC Mutual Fund, the second largest fund house nationally, expects gross domestic product or GDP of India to further accelerate on the back of healthy macro economic indicators along with improvement in capex in housing, urban infrastructure and defence.
"Macro economic parameters of India like fiscal deficit, current account deficit, FDI, inflation are healthy which would help growth to further accelerate with improvement in capex in housing, urban infrastructure, defence, " the fund house said in its outlook report for FY 19.
RBI has estimated GDP growth of 7.4 and 7.7 percent in FY19 and FY20, respectively, versus 6.6 in FY18.
The fund house said equity markets are at an interesting juncture as the phase of weak earnings has come to an end and expects pick-up in earnings in the current financial year.
In the last five years, corporate profit as a percentage of GDP has fallen from 3.8 percent in CY13 to 2.3 percent in CY17E (estimated).
Driven by improving fundamentals of key sectors like corporate banks, capital goods, metals the profit growth is likely to improve in future.
In terms of risks to Indian markets, the fund house stated the global events, sharp moderation in local flows and delays in NPA resolution under NCLT are the key risks to the market.
Indian markets have displayed very short term co-relation with global markets. Indian benchmark indices have corrected nearly 8 percent since January, when they had hit record highs.
According to the fund house, increasing US markets volatility or sharp fall in US markets may lead to short term correction in Indian markets.
Further, the report stated any sharp increase in US rates could also adversely impact equity and bond markets in India especially in short term.
Record foreign exchange reserves and healthy balance of payments should however, moderate the impact of external environment and external capital flows for India, HDFC Mutual Fund said.
Besides, as in the past, the impact of global developments on Indian markets should be minimal over medium to long term.
Domestic fund flow will continue to remain strong but according to the fund house bulk of local flows to equities are structural in nature, however these need to periodically monitored.
In view of the above, fund house finds merit in increasing allocation to equities or in staying invested in medium to long term.