ETMarkets.com, Feb 20, 2019
The macro picture looks favourable for equities, said Sunil Sharma, CIO at Sanctum Wealth.
Mumbai: The macro picture looks fairly good in 2019 for equities, buffeted by domestic flows, declining rates, low inflation, lower crude, and accommodative bank policy, according to Sanctum Wealth Management.
“In 2018, we were advising investors to cut back on equity allocations. In contrast, as we head into 2019, the macro picture looks favourable for equities,” Sunil Sharma, chief investment officer at Sanctum Wealth Management said in a note.
“Elections, fiscal stimulus, the Fed and US China trade war are likely to garner short term focus, but lower crude, low inflation, accommodative central banks, structural reforms, a resurgent technology sector, rising consumption and rising domestic flows remain key underpinnings that will drive India’s economic growth,” said Sharma.
He argued that there remains an excess of capital chasing fewer attractive opportunities.
The US has $37 trillion in assets under management. India is a fraction of that, and India’s market cap is less than 2 per cent of the global market cap. Domestically, substantial capital sits on the sidelines.
Slowing global economic growth remained a risk to our outlook, as do elections and credit stress, he said.
A neutral US Federal Reserve, a stabilising balance sheet and an accommodative Reserve Bank of India (RBI) add to our positive macro outlook.
Accommodative RBI policy starting in late 2001, late 2008, early 2012, and early 2014 was a precursor to healthy equity markets, Sharma said, adding the track record during declining interest rate environments suggest a similarly favourable outlook.
Interestingly, the data on equity performance during various political regimes clearly demonstrates that the equity markets have little if any direct correlation to the political party in power.
Sharma warned that while valuation remains sentiment driven to some extent, we are now entering the fifth year with limited contribution by earnings growth, and yet again, and more than ever, it will be critical for earnings growth to come through.