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Perspective

Fear factor
20/20 denotes perfect visual acuity but, as we head into the leap year, the outlook appears hazy and bleak

N Mahalakshmi

Year 2020 denotes perfect visual acuity but, as we head into the leap year, the outlook appears hazy and bleak. Just about every lead economic indicator has either hit a new low or is fast heading towards it. GDP growth is already at a six-year low of 5%, and industrial and gross capital formation numbers are trending lower with every passing quarter.

While the macro picture looks challenging, the benchmark indices seem to portray a rosy picture. Both the Sensex and the Nifty are close to their all-time high. You would think investors are wildly optimistic, but the reality is that they are getting increasingly risk averse. This is evident from the divergence in performance of stocks across market caps. Over the past year, return for large-cap stocks has been 14% as opposed to a meagre 1.90% for mid-caps and -4.22% for small-caps.

Wealth managers seem to be crowding into a safe corner. But how long can they park investor money in large-caps and expect great return? At Upper Crest, the 8th Outlook Business Private Wealth Roundtable, advisors maintained that they are not missing any opportunity in mid-cap stocks. Just because these stocks have come off 60-70% doesn't mean they are safe. Risk-reward for equities is still favourable, they insist, but the managers will keenly watch the performance of frontline stocks to see if the corporate tax cut will give FY20 numbers a bump-up. More so because there has been a worrying trend over the past few quarters — of significant variance between estimates and actual earnings.

While the Street is fixated on earnings, there is a bigger concern. It’s imperative that revenue growth kicks in for India Inc. In the absence of corporate loan growth, what has been driving credit is consumer loans. But then, consumers can’t splurge for long if corporate growth continues to falter. The threat of retail delinquencies could become real. Hope and pray it doesn't.

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