We expect further marginal downside driven by global factors like bond yield hardening in the US. This might cause some fund outflow from India. Downside will be a good opportunity to buy into Indian equities. Indian equity market will do very well over the next three years. Macroeconomic conditions are improving; December 2017 earnings have been decent. We expect Indian equities to do well in the medium to long run.

Current account deficit is doing well. Since we had to invest in growth, fiscal deficit has widened a bit. But I would say it is not of a concerning magnitude. Also, in India, we had twin adjustments — GST and demonetization — in the recent past. Considering that, we are doing reasonably fine.

Earnings momentum is expected to pick up. Banking sector is going through an adjustment, especially corporate banks and PSU banks. We expect NCLT to resolve many sectoral issues, especially in metals sector. Of the total INR 1.3 lakh crore IBC cases under NCLT, nearly INR 0.6 lakh crore are related to steel sector. With the recent progress on some cases we expect strong pullback in production in the metal sector. The signs are positive.

Considering the current state of volatility where global demand and urban consumer sentiment are improving, but continued pain over PSU NPAs, it is safer to have exposure in global sectors such as IT and metals.

PSU banks are facing multiple challenges. NPA problem has been well documented, but they lack capital to lend and grow. Government needs to recapitalize fast. Also, management issues are there, talent is a real concern. Due to lack of recapitalization, PSU banks are unable to tap retail sector growth and hence are losing market share to private players. They have a good deposit taking franchise. Government should allow mergers and acquisitions and privatization.