We firmly believe that the Indian equity markets will continue to thrive and that we are entering a pivotal decade for India’s economic development. This is why we’re witnessing a surge in activity among smaller Indian companies and private equity players. India is well on its way to becoming one of the leading wealth-generating nations globally.
It’s essential to consider the broader context of emerging markets alongside India’s growth story. While the Indian indices have been experiencing strong gains, it’s important not to overlook the fact that many Emerging Market indices remain in a bear market phase, significantly below their peak levels reached around February 8, 2021. Contrary to expectations, China, a dominant force in these indices, has not yet managed to lift emerging markets from their economic challenges following the withdrawal of strict COVID-19 containment policies. Recent economic data paints a concerning picture, revealing high unemployment rates of nearly 40% and widespread weak demand for durable goods and services.
However, there are potential turning points on the horizon. The US Federal Reserve (the Fed) is anticipated to adopt a more accommodative stance, which could influence the strength of the US dollar. Simultaneously, China is expected to contribute more positively to global trade as its economy rebounds and domestic demand increases. This shift could lead to stronger commodity prices, benefiting countries in Latin America and Asia that rely on commodity exports.
Looking ahead, there’s a likelihood that indices could reach even higher levels over the next few years. The balance is tilting towards emerging markets, particularly in Asia, which suggests that maintaining confidence in Indian equities is a wise strategy. However, it’s important to acknowledge that in the short term, while waiting for these factors to play out, there might be market volatility.
If China’s economic performance improves, India’s relative valuations may shift, potentially diverting investment flows to other countries and tempering upward momentum. Additionally, the US dollar might remain robust in the interim. Consequently, in the short term and given current valuations, we recommend that investors exercise caution. Increasing exposure to mid-duration debt instruments could be beneficial, especially as they could yield positive results in a scenario of lower or stable long-term interest rates.
Furthermore, there’s a range of innovative fixed-income products available, particularly in the Portfolio Management Services (PMS) and Alternative Investment Fund (AIF) domains, aside from traditional mutual funds. Engaging with your financial advisor to explore these options and gradually increase your exposure could prove advantageous in the changing market landscape.(The author is Sandip Raichura – CEO of Retail Broking and Distribution & Director, Prabhudas Lilladher Pvt Ltd)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
