The Hindu Business Line, Jul 7, 2017
By Priya Kansara
Sunil Sharma, CIO, Sanctum Wealth Management
Earnings will be impacted by GST as many firms chose to put off purchase decisions
While Indian equity markets certainly look stretched at higher levels, foreign institutional investors have little choice but to invest in emerging markets such as India, according to Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management. He is bullish on various initiatives taken by the government to bring the population under the tax net, which will help organised players. Excerpts:
What do you think is holding the markets at higher levels?
Valuations are heady due to the lower cost of capital, driven primarily by foreign fund flows into our markets. In addition to this, interest rates have declined almost 300 bps over the past three years, of which a little less than half came through late last year. Normally, it takes six to nine months for rate transmission to occur in developed markets.
We expect this to be nine months for India. Thus, fourth quarter will see a gradual improvement in disposable income.
GST will be a game changer. By linking Aadhaar to mobile, and Aadhaar to PAN, alongside GST and demonetisation, the government is demonstrating clear intent to bring the larger populace into the fold. This has dramatic repercussions, which when considered from the market’s perspective, are clearly positives. While this will certainly translate into increased tax rolls for the government, we also see direct benefits for organised players.
Nevertheless, markets are likely to remain volatile in the short term.
What are the positive or negative triggers for the markets, going ahead?
There are positive triggers related to GST that are under-appreciated by the market. This is followed by rate transmission benefits, Seventh Pay Commission, a good monsoon, and farm loan waivers as additional well-recognised triggers.
On the negative side, adverse outcomes on the NPA resolution efforts with the largest defaulters or a worsening of NPAs with public sector banks could create concerns amongst investors. Globally, we’re concerned with the actions of the Fed, though we’d point out that Fed tightening cycles have historically been positive for emerging markets.
How do you see the trend in foreign flows?
The US economy weakened in the most recent month or two. While Europe continues to demonstrate surprising activity, the global economy remains somewhat challenged in my view. Thus, foreign institutional investors are going to continue to deploy funds into markets with attractive prospects such as India.
What are your expectations from the June quarter results amid GST? Your expectations for the rest of the year…
Earnings will be impacted by GST as many companies chose to put off purchase decisions in the June month around uncertainties and impacts related to GST. I am looking for marginal improvement in the upcoming quarter and have higher expectations for the second half of the calendar year.