MF Wrap: IDFC MF says equity market will return anything but 10-15% return

Moneycontrol News

IDFC Mutual Fund in it’s  outlook report indicated that CY19 will provide returns of anything but 10-15 percent.

“Historically, only once since 1979 has the Sensex given returns in the range.have now turned favourable for equity markets,” IDFC Mutual Fund said.

On January 25, the 7.17 percent, 2028 government bond, the most traded paper by volume, rose to Rs 97.58 or 7.55 percent yield, Rs 97.51 or 7.56 percent yield on January 24, while the 7.26 percent, 2029 bond closed at Rs 99.51 or 7.33 percent yield, against Rs 99.76, or 7.29 percent yield on January 23. No deals were struck in the 2029 bond on January 24.

As of now, the concerns on oil and yields have receded, which should provide a breather to the Indian rupee, the fund house said. The recent, rupee depreciation was triggered by macro concerns -- oil prices increase, rising yields and concerns on fiscal slippage.

On January 25, Indian rupee closed at 70.89 against a dollar versus January 24 closing of 71.07 per dollar, while International Brent crude oil futures were at $61.89 a barrel or 1.3 percent, above their last close.

"Every bout of sharp rupee depreciation has been caused by 2-3 factors, on a reversal of which rupee tends to rebound. In past, bouts of sharp rupee depreciation have been followed by a period of retracement, as the factors causing the depreciation reverse," IDFC Mutual Fund stated.

The fund house noted that earnings recovery will be the key factor to watch out for as markets consensus is expecting a cyclical-led earnings recovery that should provide support to the markets.

"Each of the years has witnessed a large sector contributing disproportionately to the earnings cut due to reasons such as sharp fall in commodity prices, disruption due to demonetisation, GST rollout, NPA recognition by banks," according to the report.

However, the NPA cycle is likely to have peaked and negative surprises are unlikely.

With reference to elections, the fund house said that election years have been generally good for the markets whenever stable governments were formed. Only in 1996 and 1998, markets were negative when the governments didn't last 5 years.