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Market analysts bet in equities to deliver best returns in FY18

LiveMint logoLiveMint 02-04-2017 Nasrin Sultana

Mumbai: After delivering bumper returns in FY17, equities are expected to be the most preferred asset class for investment in the new fiscal year as well, analysts say.

Economic stability, reinforced by an expected global recovery that will boost exports, and the implementation of reforms such as the goods and services tax (GST) are seen as potential triggers for equities to outperform other asset classes in FY18.

According to the CFA (Chartered Financial Analyst) Society India survey released on 31 March, 77.3% of 540 respondents say equities will be the best asset class in FY18.

Volatility is likely to prevail through the year owing to events lined up in developed countries, including the crucial elections in France and Germany, analysts say.

Even so, there is a conviction among investors to buy equities with a two-year time horizon, said S. Naren, executive director and chief investment officer, ICICI Prudential Asset Management Co. Ltd.

“Valuations on parameters such as market capitalization to GDP (gross domestic product) are reasonable and profit as a percentage of GDP has reduced substantially,” Naren said. “Going forward, we expect these matrices to improve, which, in turn, could translate to better equity returns over the next two years.”

A liquidity surge and positive investor sentiment after the Bharatiya Janata Party (BJP) won the crucial assembly election in Uttar Pradesh, lifted Indian equities to record highs in March.

The Sensex gained 16.88%, while the Nifty soared 18.55% in FY17. In March alone, foreign institutional investors (FIIs) pumped Rs1.43 trillion (provisional) into Indian equities, the highest in the full financial year.

The gains came on top of a decline of 9.36% and 8.86% in FY15-16 for the Sensex and Nifty, which had gained 24.89% and 26.65%, respectively, in the previous year.

Among emerging markets, India stands third in terms of FII investment, after South Korea and Taiwan.

According to the National Securities Depository Ltd, FIIs bought a total Rs11.79 trillion in FY17, 8.02% more than what they had purchased in FY16.

Equities should be looked at with a time horizon of 3-5 years, said Navneet Munot, executive director and chief investment officer, SBI Funds Management.

“...equity and commodities are two asset classes that an investor should look at. For short term, fixed income instruments should be considered,” Munot said.

In FY17, the MSCI Emerging Markets index was up 14.53%, outperforming the MSCI World Index, which gained 12.47%.

“Emerging markets will see good inflow of foreign money and may outperform developed markets. There may be outflows in short-term if risk appetite falls, but India will still be preferred by FIIs,” Pramod Gubbi, head of equities, Ambit Capital, said. “Foreign investors are preferring India on hopes of economic stability as GST is expected to be implemented in July, while government’s efforts to reform banking system are also seen as positive.”

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