2017 proved good for equity investors with almost all global markets experiencing a bullish run.
This was mainly driven by high liquidity and many consider it a growth recovery after the 2008 financial crisis.
What are the trends worldwide?
India’s Nifty saw a net capital gain of 28%, mainly due the highest ever investments by mutual funds and supportive global portfolio flows.
The primary market was also buzzing with 120-odd initial public offerings, picking up Rs 750 billion in subscriptions.
Elsewhere too, this trend prevailed, with America’s Dow Jones Industrial Average gaining 24.5%, Euro zone’s FTSE 100 gaining 24%, Japan’s Nikkei 225 was up 23%, and South Korea’s KOSPI was up by 35%.
Significantly, the US economy is in top gear, Japan has seen its best growth in two decades and the EU too recorded its best growth of this decade.
Notably, China’s Shanghai was an underperformer and gained only 12%.
What is the investment profile in Indian?
Mutual fund contribution exceeded the combined funds of foreign portfolio investors (Rs 500 billion) and Other Domestic Institutions (Rs 820 billion).
Also, India’s rally received additional impetus from retail participation, who own just under half of that “Assets under Management” (AUM).
Notably, around 800,000 new systematic investment plans are being opened every month and many individuals are also investing directly in equity.
The Challenge - The only concern for Indian investors was the low earnings growth – last year, the Nifty’s earnings rose just 5.5%.
It is the hopes of a corporate rebound that have kept investors interested and rising share prices have also created a wealth effect.
While this has helped attract more rounds of investments thus far, if there isn’t an earnings rebound, the trend will see a reverse.
But an earnings rebound will depend on higher consumption and more private sector capital expenditure, both of which are currently weak.
How does the future look?
Indian markets have shown be quickly receptive to business and has avoided being a clearly unbroken bullish run, which promises its sustainability.
Also, despite the global growth recovery, FPIs are unlikely to move out as there are few alternative markets that can give such decent returns.
While this provides some stability to Indian markets, there are several policy expectations from the government to kick-start CapEx and boost consumption.
The Union Budget is showing signs of a fiscal slippage and hence it is important to avoid populism to send reassuring signals to investors.
Also, the churn due to the GST regime will have to stabilise.
