"The big structural theme is that 'big is getting bigger"

2019 has proved to be a rollercoaster ride and the new year will likely be the same. While sentiment on the Street seems buoyant with the benchmark indices flirting with all-time highs, business sentiment is far from bullish. There is no denying the severe economic slowdown — GDP growth is at a six-year low, and credit crunch is squeezing the life out of businesses across sectors. Even in these terrible times, the wealthy have become wealthier. While all economic forecasts point to a further dip in GDP growth, the stock market seems to be discounting the negatives. For now, the rich are sticking to equities and alternatives, since they suffered a hit from betting on structured debt products. It was not surprising to see the wealth advisors at the 8th Outlook Business private wealth roundtable playing it by the ear. Here’s what they had to say.

Outlook Business (OB): Welcome to the 8th Outlook Business annual private wealth roundtable. Last year when we met, everyone was optimistic about 2019, but the run of it has hardly been comforting. So, where did the script go awry?

"As long as one sticks to asset allocation and has a balanced approach, there is money to be made in equities" —Oisharya Das, Kotak Mahindra Bank

Kotak Wealth Management

Minimum Ticket Size

• Rs 50 million

Assets Under Management

• Rs 2.42 trillion

Asset Mix In 2020

Balanced

• Equity 45%

• Debt 50%

• Alternatives 5%

Aggressive

• Equity 65%

• Debt 25%

• Alternatives 10%

Conservative

• Equity 30%

• Debt 70%

• Alternatives 0%

Outlook 2020

Favoured Sectors

• Private Banks, Insurance, Consumers

Sectors To Avoid

• Metals & Mining, IT Services

Top 3 Equity Funds

• Mirae Asset Large Cap Fund

• Kotak Standard Multicap

• Axis Smallcap Fund

Top 3 Debt Funds

• SBI Low Duration Fund

• IDFC Banking and PSU Debt Fund

• L&T Triple Ace Bond Fund

Expected Return

• Equity: 10-12% (next 3 years)

• Debt: 6.5-7%

• Alternatives: 12-15% (5-7 years)

Oisharya Das, CEO, Kotak Wealth Management, Kotak Mahindra Bank: Undoubtedly, it has been a challenging period, especially with the credit crisis playing out. Clients are still risk-averse and looking at safer havens. We have been very cautious on the credit space. Today, an investor is looking at high quality conservative debt for preservation and not for returns. After the corporate tax cut, we went overweight, but investors chose to stay neutral.

Atinkumar Saha, head-wealth management, Deutsche Bank:
We have stayed conservative with a neutral call for one and a half years. Fortunately, we have always managed house calls through asset allocation. So, if you are a conservative investor, you will have 20% equity, while an aggressive client would have around 60%. Also, we were not big on alternatives such as structure, PE or venture funds. So, that kept us in good stead. Our non-discretionary PMS has done exceptionally well with 18% CAGR, beating both the indices by a good margin of 300 bps last year. Focus on large-cap MFs and the PMS has helped us weather the storm. But, going ahead, the skewed performance of large-caps seems like a worrying trend.

"AAA and AA spreads have widened, as NBFCs and MFs are unable to lend, which is a chance to create an investment structure" —Yatin Shah, IIFL Wealth

IIFL Wealth

Minimum Ticket Size

• $1 million (Rs 70 million)

Assets Under Management

• Rs 1.72 trillion

Asset Mix In 2020

Balanced

• Equity 50%

• Debt 40%

• Alternatives 10%

Aggressive

• Equity 80%

• Debt 0%

• Alternatives 20%

Conservative

• Equity 20%

• Debt 75%

• Alternatives 5%

Outlook 2020

Favoured Sectors

• Private Banks, Insurance, Consumer Discretionary

Sectors To Avoid

• Auto & Auto Ancillaries, PSU Banks

Neutral Sectors

• Telecom, Pharma, Information Technology

Top 3 Equity Funds

• Mirae Asset India Largecap Fund

• Franklin India Focused Equity Fund

• IIFL Focused Equity Fund

Top 3 Debt Funds

• IDFC Banking & PSU Debt Fund

• L&T Banking & PSU Debt Fund

• ICICI Pru Banking & PSU Debt Fund

Expected Return - Pre Tax

• Equity: 12-14% (next 3 years)

• Debt: 7-8% (next 3 years)

• Alternatives: 15-20% (next 5-7 years)

Yatin Shah, co-founder and executive director, IIFL Investment Managers: What began as a liquidity crisis is now a solvency crisis. From a wealth management perspective, the entire focus today is on capital preservation. Clients have seen that trying to chase returns have led to many accidents, especially in credit funds. Most investors would have lost money in fixed income MFs, and, hence, today, there is zero tolerance towards risk. But what is important to note is the re-pricing of credit. AAA and AA spreads have widened, as NBFCs and MFs are unable to lend, which is an opportunity to create an investment structure. Hence, we launched a close-ended credit risk fund, which saw inflows of around Rs 17 billion. Of course, the market has been turbulent, but that’s your chance to cherry pick. If you are vigilant and invest a lot of time, effort and research to scout the market, you can target return of over 15%.

Rajesh Iyer, head-private banking and wealth management, ICICI Bank: The big structural theme is that ‘big is getting bigger’ even as weaker businesses are facing increasing headwinds. If you look at small-cap performance, from August 2015 to January 2018, they saw massive outperformance. So, what we are seeing is a mean reversion. Also, the reality today is that Nifty 50 companies’ combined profits have grown just 2-3% against consensus growth of 18%. As a house, we have been pretty neutral, and are now starting to look at small and mid-caps, where patience is key. But the challenge is that certain quality large cap stocks are priced at 100x PE. From an investor’s standpoint, it’s all about capital conservation. Unless liquidity comes back, risk aversion will remain.

Ashish Gumashta, MD and CEO, Julius Baer: Last year, real risk was high and perceived risk was low. This year, perceived risk is high and real risk is fairly priced. When any market bottoms out, it’s difficult to time it. For the first time in our career, we had a few stocks giving impressive return. So, while the investor might think the market is going upwards, it’s not reflecting in his portfolio. In fixed income, Indians never thought there was anything called mark to market (MTM). Global fixed income investors are aware of volatility in bond, but Indians aren’t. That’s why we are seeing this flight to safety. We have had tax rate cuts, interest rate cuts, but earnings aren’t coming through. The key challenge is that amidst a credit crisis, we have also got a resolution deadlock under the Insolvency and Bankruptcy Code.

Anshu Kapoor, head-private wealth management, Edelweiss Financial Services: For the past 13 months or so, we have been extra vigilant and are in a risk-management mode for clients. India has been through a currency bear cycle a couple of times, and equity bear cycle several times. But this is for the first time that a credit bear cycle has hit us. Fortunately, we saw the global version in 2008 and 2009. So, we could learn from these. The first thing we try to do is to separate credit and fixed income in the client’s mind. Even if it means taking 3-5% MTM loss for clients, we did it. Equity is easier to handle because there’s experience there. Hence, our client engagement has been at its peak over the past 13 months. We also really focused on fixed income. Our clients usually belong in the high tax rate category. So, the ability to lock in long tenure is a huge advantage since yields are going to fall. For instance, we found that if you do an FD with AAA PSU bank it will give you 7% return, but if you buy the perpetual of the same PSU bank it’s 9.5%. Thus, we advised clients to move away from credit risk but still lock in some yields.

OB: It’s ironic that 2020 means perfect vision but our window into it remains foggy. We are in an uncertain territory where every lead indicators are either at a new low or heading there. So how do you think this will play out?

"You can’t avoid equities. It’s all about making the right choices. Even in an uncertain year, equities have fetched 13-14% return" —Rajesh Saluja, ASK Wealth Advisors

ASK WEALTH

Minimum Ticket Size

• Rs 70 million for Wealth Advisory & Management

• Rs 1 billion for Family Office Services

Assets Under Advisory

• Rs 104.56 billion

Assets Under Management

• Rs 432.28 billion

Asset Mix In 2020

Balanced

• Equity 42.5%

• Debt 42.5%

• Alternatives 10%

• Gold 5%

Aggressive

• Equity 65%

• Debt 15%

• Alternatives 15%

• Gold 5%

Conservative

• Equity 20%

• Debt 70%

• Alternatives 5%

• Gold 5%

Outlook 2020

Favoured Sectors

• BFSI

Sectors To Avoid

• Cyclicals, Metals and Mining, Infrastructure

Top 3 Equity Funds

• Mirae Asset Large Cap Fund

• Axis Focused 25 Fund

• Kotak Standard Multicap Fund

Top 3 Debt Funds

• IDFC Banking and PSU Debt Fund

• L&T Triple Ace Bond Fund

• SBI Corp Bond Fund

Expected Return

• Equity: 12-15%

• Debt: 6-7%

• Gold: 6-7%

• Real Estate: 15% (through RE Funds)

• Alternatives: 15-20%

Rajesh Saluja, CEO and managing partner, ASK Wealth Advisors: It is during crises like these that you end up finding gems. Yes, our economy has weakened over one year, but that’s an outcome of the structural reforms such as GST (Goods and Services Tax) and demonetisation, which has been further accentuated by the NBFC crisis. Every year there is some noise. You can’t avoid equities. It’s all about making the right choices. Even in an uncertain year, equities have fetched 13-14% return. Even in real estate there’s opportunity; it is getting better to invest as a fund and not directly in property. Gold also remains a fair option from an allocation perspective, but equity is by far the best asset. Fixed income has been a challenge and we have always believed that it is far riskier than equity. Unfortunately, clients chase higher returns in debt, and that is where we get stuck. So, you have to guide clients to remain focused on safe investments.

OB: So, are clients convinced that this is a good time to shop?

Saluja: Smart clients have been making equity allocations over the past few months. Even if you look at retail clients, they are not timing the market, but are investing systematically through SIPs. So, anyone who has is seasoned and has seen two or three cycles still has a larger allocation in equity. People are shying away from alternatives such as real estate. In fact, we are finding it hard to get clients to invest in real estate funds due to a negative perception.

"From an investor’s standpoint, it’s all about capital conservation. Unless liquidity comes back, risk aversion will remain" —Rajesh Iyer, ICICI Bank

ICICI Bank

Minimum Ticket Size

• Rs 50 million

Assets Under Management

• Rs 490 billion

Asset Mix In 2020

Balanced

• Equity 50%

• Debt 40%

• Alternatives 10%

Aggressive

• Equity 65%

• Debt 10%

• Alternatives 25%

Conservative

• Equity 20%

• Debt 80%

• Alternatives 0%

Outlook 2020

Favoured Sectors

• Corporate Banks, Consumers, Industrials, Chemicals

Sectors To Avoid

• Telecom, Real Estate

Top 3 Equity Funds

• Mirae Large Cap

• ICICI Pru Multicap Fund

• Kotak Multicap

Top 3 Debt Funds

• ICICI Credit Risk Fund

• IDFC Banking & PSU Debt Fund

• Kotak Savings Fund

Expected Return

• Equity: 10-12%

• Debt: 6-7%

• Gold: 5-7%

• Alternatives: 12-15%

OB: What gives you the conviction that the pain is over for the real estate sector?

Saluja: In real estate, the good has been separated from the bad. The industry is not dead. While the Uber-Ola phenomenon is being seen as one factor impacting auto sales, in real estate, people still want to own a home, especially in the middle and lower-middle classes. We are still sometime away from when rentals and co-living will become mainstream. There is still a supply demand mismatch in certain areas. What is keeping buyers away is the execution risk, concerns over stability of jobs and partly interest rates.

Yatin: Interestingly, we did a survey few months back, across 35 cities, covering 500 clients whose collective net worth is $20 million. Unanimously 94% clients said they would rather sell than buy any RE as the sector is plagued by far too many problems. In fact, if we take a look at the balance sheets of top 10 RE companies, there is a huge refinancing need of around $30-50 billion. You need foreign capital as you can’t raise that kind of money in India.

OB: Oisharya, how are you assessing the landscape?

Das: In 2000, you had the dotcom crisis, in 2008 the Lehman crisis happened, but all of those were linked to equity. This time around, it is debt. Clearly, one cannot time the market and investors have also stayed the course for a longer duration. We can take opportunistic, tactical calls such as going underweight and overweight based on valuations. But to go 100% to nil on equities is not ideal, and that’s something that has worked well in maintaining asset allocation. Valuations look reasonable right now, so we have changed our market cap bias from 70% on large-caps and 30% on mid-caps to 60% and 40% respectively. So, as long as one sticks to asset allocation and has a balanced approach, there is money to be made in equities. In alternative asset classes, we have seen reasonable success in newer products such as REITs and other private equity opportunities.

"In tough times like these, if you are not very smart, stick to the basics and follow an asset allocation model" —Ashish Gumastha, Julius Baer

Julius Baer

Minimum Ticket Size

• $1 million (Rs 70 million)

Assets Under Management

• $9 billion

Asset Mix In 2020

Balanced

• Equity 50%

• Debt 40%

• Alternatives 5%

• Gold  5%

Aggressive

• Equity 80%

• Debt 0%

• Alternatives 20%

Conservative

• Equity 20%

• Debt 75%

• Gold 5%

Outlook 2020

Favoured Sectors

• Private Banks (especially corporate banks), Healthcare, Consumer Discretionary

Sectors To Avoid

• Infrastructure, Metals and Mining, Consumer staples

Top 3 Equity Funds

• Axis Bluechip Fund

• Kotak Standard Multicap Fund

• DSP Midcap Fund

Top 3 Debt Funds

• IDFC Banking and PSU Debt Fund

• ICICI Prudential Corporate Bond Fund

• IDFC Bond Fund - Short Term Plan

Expected Return

• Equity: 10-15% (next 3 years)

• Debt: 6-8% (1 year)

• Real estate: -5 +5% (1 year)

• Alternatives: 12-17% (5-7 years)

OB: Do you all believe that the structural reforms have caused more damage than gain?

Shah: These reforms ensure future growth and a level-playing field for investors. Any reform needs to be tweaked along the way.

Saha: I believe demonetisation and GST have created a lot of disruption and impeded growth, which got a further jolt from the NBFC crisis. Purchasing power has not increased, and that has affected sentiment. Further, the IBC hasn’t proved to be effective, with previous promoters stalling the process. So, there are multiple factors at play. But if the government intervenes strongly, I think there is hope. We will see better days from the third quarter of next year.

Kapoor: It’s important to understand that Indian policymakers have chosen to respond to the credit crisis very differently from what the Fed has done. In 2009, the RBI gave a back stock to the NBFCs, but that was never utilised. This time, they chose not to do that. They said they would create enough liquidity in the market and will come out with policy responses that will enable capital to be raised. So far, the government has only responded with “please go through the readjustment”; we will structurally solve the problem, but we will not bail you out.

Saluja: One can argue about the timing and execution, but from a long-term perspective, structural reforms are good. If you kill the parallel economy, how will growth not slow down? So, we are going through that process of change. Now, the government also needs to focus on the demand side. What we must understand is that the slowdown is also being impacted by a weakening savings rate, falling capex since 2012, and changing business models.

OB: So what are clients being advised right now?

Gumashta: One of the things that we have done is to diversify our client’s exposure internationally. We are also very traditional in our approach and that reflects in our AUM, where the majority is in basic debt products. To that extent, while we missed the alternatives bus, we were saved from the crisis. But there are opportunities today. For example, the dividend yields of some of the country’s large PSU companies are currently more than their bond yields. So, one doesn’t have to do anything exotic to fetch returns. In tough times like these, if you are not very smart, stick to the basics and follow an asset allocation model.

OB: Would that also mean buying stocks at 100x PE?

Iyer: The point is that you must wait for economic tailwinds to set in before taking bold bets. Right now, it’s the time to stick to quality stocks and not get adventurous.

OB: How would you define quality stocks?

Saluja: Quality doesn’t mean blue chip. In fixed income, DHFL was rated AAA, but was it a quality instrument? Besides the size of the business opportunity, planning and capital efficiency, other parameters such as corporate governance and the integrity of the promoter matter too. As far as equity is concerned, you have to consider whether a company is a capital guzzler or capital efficient, and also assess the quality of its earnings growth over the past five years. Just because a stock has been battered 60-70% doesn’t necessarily make it a good investment.

"For the first time, we are seeing monetary and fiscal easing being administered concurrently, which shows the policymakers’ resolve" —Anshu Kapoor, Edelweiss Financial Services

Edelweiss Financial

Minimum Ticket Size

• Rs 50 million

Assets Under Advisory

• Rs 1.06 trillion

Assets Under Management

• Rs 363 billion

Asset Mix In 2020

Balanced

• Equity 45%

• Debt 45%

• Alternatives 10%

Aggressive

• Equity 60%

• Debt 25%

• Alternatives 15%

Conservative

• Equity 25%

• Debt 70%

• Alternatives 5%

Outlook 2020

Favoured Sectors

• Private Banks, Consumption (selectively), Infrastructure (selectively)

Sectors To Avoid

• Information technology, Pharma

Top 3 Equity Funds

• Mirae Asset Large Cap Fund

• Axis Multicap Fund

• Kotak Emerging Equity Fund

Top 3 Debt Funds

• IDFC Banking and PSU Debt Fund

• Sundaram Corporate Bond Fund

• L&T Triple Ace Fund

Expected Return

• Equity: 12-14% (next 3 years)

• Debt: 7-8%

• Gold: Tactical hold for now

• Alternatives: 15-20% (Next 7 years)

OB: Have valuations captured the impact of corporate tax cuts in terms of earnings growth?

Kapoor: From a macro perspective, for the first time, we are seeing monetary and fiscal easing being administered concurrently, which shows the policymakers’ resolve. The tax cut is more to do with the competitiveness of India Inc rather than its earnings. Our macro is great minus exports — engineering and non-oil exports are struggling. Just wait for another two years ­— quite a few large groups are contemplating floating new companies to take advantage of the tax cut. The cut will improve our competitiveness because, today, pricing is everything,

Saluja: Companies that enjoy a higher return on capital will use it differently than those who are poor capital allocators. The first ones can dole out higher dividends, build capacity, or look at price cuts to spur demand. But it’s important that the government does something on the demand side, which, in my opinion, could be expected in the run up to the Budget — either by lowering personal income tax or further rationalisation of GST. If demand still doesn’t pick up, the cut would end up as a one-time bonanza for promoters who have been through the pincer over the past couple of years.

Das: The tax break is a huge opportunity for both domestic and foreign investors to set up a manufacturing base in India, and we will see that playing out over the next two to three years. Looking at equities, the second half of 2020 should be better than the first one. If you look at the consumption sector, the valuation looks expensive, but good quality companies will continue to corner a disproportionate share of incremental liquidity. Hence, we will see prices being driven higher.

OB: Will the tax cut revive the capex cycle?

Kapoor: It will come with growth.

Gumashta: Once India Inc’s capacity utilisation crosses 80%, you could see fresh investments.

OB: But RBI data shows that some sectors have touched 80%. This is not reflecting on the ground.

Saluja: Mere tax cuts won’t help. We need to ensure land and labour reforms as well. To that extent, the government’s move to appoint a single person as relationship manager for a certain threshold of investment is a step in the right direction. Companies moving out of China could be the prime candidates. So, let’s see if investors take the bait. If we don’t fix the issues mentioned, then reviving capex in the country would be a challenge. Money will continue flowing into services sector, particularly in financials, but not manufacturing.

Das: Credit offtake is very slow as the sentiment among India Inc today is still one of caution. It is not percolating down to the industry despite the rate cuts.

OB: So, is it a sentimental or structural issue?

"There is a lot of opportunity in the market for investors, but clients need to temper their equity return expectation" —Atinkumar Saha, Deutsche Bank

Deutsche Bank

Minimum Ticket Size

• €1 million (Rs 78.7 million)

Assets Under Advisory

• Rs 32 billion

Assets Under Management

• Rs 165 billion

Asset Mix In 2020

Balanced

• Equity 40%

• Debt 50%

• Alternatives 5%

• Gold 5%

Aggressive

• Equity 60%

• Debt 25%

• Alternatives 10%

• Gold 5%

Conservative

• Equity 20%

• Debt 75%

• Alternatives 0%

• Gold 5%

Outlook 2020

Favoured Sectors

• Private Sector Banks, Consumer, Information Technology

Sectors To Avoid

• Infrastructure, Metals and Mining, Pharmaceuticals

Top 3 Equity Funds

• Axis Bluechip Fund

• HDFC Equity Fund

• Kotak Standard Multicap Fund

Top 3 Debt Funds

• IDFC Banking and PSU Debt Fund

• ICICI Prudential Corporate Bond Fund

• IDFC Medium Term Fund

Expected Return

• Equity: 12-15% (next 3 years)

• Debt: 7-8%

• Gold: 3-5%

• Real estate: 3-5%

• Alternatives: 15-20% (5 to 7 years)

Kapoor: The big trigger is credit availability. Till that doesn’t trickle down, demand creation will be in trouble.

Gumashta: It’s not structural. Look at the auto sector, everyone was talking about a slowdown, but two-wheeler sales numbers are good.

Saluja: There are metro projects underway in 40 cities across the country, and given the state of the roads and massive traffic jams, there is no urgency to buy cars. So, I also don’t believe auto is structurally facing a challenge from the so-called Ola-Uber phenomenon.

OB: Why do you think transmission is not happening?

Saha: One big trigger is corporate governance. There are hardly any quality promoters out there that bankers can bet on.

Shah: Not to mention that PSU banks are still dealing with their past problems.

Das: Private sector banks today are better placed to gain market share from the public sector banks, but one has to err on the side of caution, as the credit environment is weak.

Saluja: During the global crisis, banks played safe when it came to risk management, even with the products they were selling. The same thing is playing out in India. NBFCs have turned cautious now, while the PSBs turned off the tap three years ago. So, in the absence of capex, over the past five years, credit has flown only to consumers. That’s showing up in the savings rate, which has come down from 27% to 17%.

Gumashta: If the government can portray its intent to pursue a stable policy, it will spur sentiment. As a lot of investments happen at the state level, any reversal or instability in state government policies can impact business sentiment, which is a bigger concern than Central level reforms. So, a stable economic policy is critical in order for investment sentiment to revive. Besides, people now prefer to understate themselves despite seeing recovery in their business, given the all-pervasive talk of a slowdown.

OB: So, what are the key challenges and positives for the coming year?

Shah: From a perspective of managing portfolios, we will continue to focus on capital preservation. One needs to keep an eye on how the US-China trade war plays out. It’s becoming a battle of egos and we will continue to see that impacting currencies. India will not be immune to it.

But I am positive from the perspective of portfolio deployment for the long term. Clients penalise you if you lose capital and they stay only if you show consistency. They are not worried about 2% plus or minus return. None of us are paid to take risks. So, we have to focus on capital preservation and smart compounding, which is a 4-5% return over inflation.

Saha: India is still one of the high-growth countries and will continue to attract foreign capital. FII equity flows are already at $10 billion and domestic flows are steady. So, we feel there is a lot of opportunity in the market for investors, but clients need to temper their equity return expectation. As far as challenges go, the trade war is wearing out China and America. India will also be caught in this crossfire, currencies will be under pressure, along with capital deployment. However, if the government is able to take advantage of the trade war just like Vietnam, Bangladesh and Sri Lanka did, then you could see a rise in GDP, especially in the manufacturing sector.

OB: Do you see a further fall in GDP growth?

Saha: We could see a further de-growth to 5% in the short run, but it should bounce back by the third quarter of 2020.

Das: The biggest domestic challenge could occur if liquidity and credit risk worsen and turn into a contagion risk. Globally, if the trade war escalates, it will impact India as well. As far as positives are concerned, it would be the cut in interest and corporate tax rates. With a global slowdown, we could see more inflows coming into emerging markets, including India. We will see a slower economic recovery, but things will likely get better after eight to nine months. We believe that today, the risk-reward is in favour of equities.

Saluja: We still don’t know if there are any hidden skeletons waiting to tumble out of the NBFC closet. Smaller businesses continue to reel under the impact of the GST transition. Then, there are global factors such as the trade war and Brexit. However, if the government gets its act together, India has an opportunity to garner higher FII flow. There is a lot of money waiting to be deployed globally, given that major economies are grappling with negative yields, low interest rates and weak earnings. I think investors are waiting for the currency to stabilise and will keep a watch on how the government handles the fisc. The other big reform that the government can take is in agriculture, which accounts for 44% of the country’s labour, but contributes just 10-11% to the GDP. In the interim, we are advising clients to be selective because the moment a client’s portfolio falls by 20%, they want to rush to the bathroom! So, it’s better to remain safe and have a portfolio that is more large-cap oriented.

Kapoor: The single biggest positive playing out now, for both businesses and consumers, is the falling cost of capital. Further, the tax cut will have a positive spiralling effect on the economy. Today, home loans are available at 8.1%, and this interest rate could go down even further. Importantly, real interest rates are still high. So, once sentiment changes and the trust deficit goes away, we should attract a lot of foreign capital.

However, the trust issue must be resolved for credit growth to take off, and if it snowballs into something bigger, then we will have a cascading impact across the economy. Till now, we've only seen corporate defaults; the end game would be consumer defaults. That’s possible across segments such as SME, credit card and unsecured lending. I would really watch out for that.

Shah: What’s critical to note is that for the past five to six years, income of consumers has been flat, but their borrowings have risen. So, there is a real threat of retail delinquencies.

Gumashta: The challenge is that promoters have to see resolution. Today, if I talk to a promoter, he doesn’t know what’s in store, nor does the lead banker! Till we have some credit resolution playing out, there is likely to be uncertainty. The other big worry is: if the government continues to spend, can the fisc sustain, and what would it mean for interest rates? The big positive is that, both in fixed income and equity, 90% of the pain is in the price. Interestingly, there are good opportunities in equity. For example, quite a lot of PSUs are trading near distressed valuations. If at all one has to take a risk, then it has to be with equity.

Iyer: From a long-term view, lower cost of capital and lower inflation are good for equity as an asset class. From an opportunity perspective, we will again focus on quality. The next 12-18 months will be a good time to build a portfolio from a three- to five-year perspective. On the fixed income side, I believe, investors overseas are looking at emerging markets, especially India. On the risk side, the trade war is creating a lot of uncertainty around companies’ investment plans. And that’s a big global risk.