Potent Cocktail

2018 was expected to be a redeeming year after the twin misery of demonetisation and teething troubles of GST, but it has turned out to be far from that. A mix of global factors combined with deteriorating local macro has hit investor sentiment badly. So, it wasn’t surprising to see caution around equities among the country’s leading private wealth advisors at Upper Crest, the 7^th edition of Outlook Business’ private wealth roundtable.

The imponderables for the coming year are just too many — crude is hard to predict, and so is the dollar. Among domestic factors, there are a number of uncertainties as well — how the fiscal deficit will pan out, where interest rates will settle and biggest of all: the outcome of the general elections. Although the underlying belief is that India’s growth momentum will be maintained irrespective of who rules the nation, the market does tend to swing to the election noise.

Hence, those advising the country’s ultra rich are focusing on fixed income. Within debt, most advisors are parking clients in ultra short-term funds. Some others, though, advise staying in cash as a strategy to both protect wealth and to seize opportunities if the market spirals south.

The question on every investor’s mind is how bad could it get? There seems to be no clear answer to that, but the mantra is to play it safe because even after the recent fall, the market is not exactly cheap. Currently, one-year forward Sensex valuation of 21x is above the long-term average of 15x, which can’t be called attractive by any yardstick. Besides, Q2 earnings have been largely uninspiring and full-year earnings could be downgraded as interest rates head north.

Even though FIIs have pulled out Rs.998 billion from the equity and debt market, net investment by DIIs in equities has crossed Rs.1 trillion, which has lent a fair deal of support. There is little hope that foreign investors will change tack over the next six months given India’s precarious position. What would be interesting to watch, though, is whether monthly flows into equity MFs will continue given that one-year return for new retail money is flat to negative. With uncertainty at its peak, 2019 promises to be an edge-of-the-seat thriller.