The domestic stock market continues to swing from end to end. At one end, growth moderation has caused some concerns. But at the other end is the uptick in industrial production as marked by IIP.
In July, IIP grew 1.2 per cent year on year against -0.1 per cent in June. In August 2017, exports picked up 10 per cent over last year. But we will have to wait and see if this trade growth is more sustainable.
Point remains that there are some issues. But the structural reforms have come in. The push for transparency in capital management, tax compliance and general corporate governance may stimulate entrepreneurship. This is likely to result in sustainable long-term growth over time. Having said that, much needs to be done on the policy front. The initial teething troubles from GST, howsoever temporary, have an economic cost. Simplification and ease of doing business are the hallmarks of GST; and that principle must be ensured.
The monetary policy stance continued to remain unchanged for October 17.
Inflation concerns are clearly dominant in central banker’s risk matrix. Growth may now increasingly be dependent on the swift resolution of the stressed banking assets; and the resumption of banking credit to the commercial sector.
In this backdrop, market valuations may appear on the higher side to some, especially to those comparing their experiences with the 2007-08 market. But we forget that that market fell because the rest of the world was in a major global crisis then. No such shock risk is on the horizon, at least not in the financial space for now.
Moreover, FII sentiments decided the market direction in 2008. But in 2017, domestic institutions, especially mutual funds, have emerged a major force in the equities market. And they are adding depth to the market. It’s likely that major indices may remain rangebound with some volatility from time to time. However, value may be available for picky fund managers. And such funds are likely to lead the performance pack henceforth.
The AUM inflow to the mutual funds industry continues to remain robust. The Q2 quarter has seen an incremental growth of around Rs 1.42 Lakh crore over Q1 of FY18. That is a QoQ growth of around 7 per cent. Kotak Mutual Fund’s average AUM for July-Sept quarter of 2017 was at around Rs 1.10 lakh crore. We saw an average AUM growth of around 9 per cent QoQ in the said period. We remain convinced that this trend is set to continue as more and more households reallocate their savings from physical to financial assets.
The opportunity for us as investment professionals is to now provide a robust service structure and build sacred trust with retail investors. We must remember that not all investors are Kumbhakarna.
Many investors tend to adopt an Ekalvya route with their investment decisions. And unless such an investor is focused, disciplined and self-learning, the possibility of getting exposed to high risks is rather huge. Therefore, we would need to help them appreciate the quality of our advice/service by generating alpha for investors. And businesses that do that will be able to retain most of their investors through the market cycle.