Markets have three concerns due to Dr Rajan’s decision to not take up a second term — first, a change in stance on the anticipated rate cuts. Second, an FII sell off in the bonds market and, third, a large depreciation in the rupee. Markets have been anticipating a rate cut in the second half of this year. This cut will be contingent on a normal monsoon and CPI inflation remaining around 5%. As far as FII outflows are concerned, the Reserve Bank of India (RBI) has been providing liquidity to the market through OMOs (open market operations), and there should not be a big challenge to bond yields. RBI is bound to intervene in the currency markets to curtail excessive volatility, and this will be easier now, given the large forex reserves.

The impact of a poor monsoon on the economy is, to some extent, overrated. In a good monsoon year, food grain production averages at around 260 million tones (MT), and in a bad monsoon year at around 250 million tones — not a very significant difference. However, there is little doubt that a good monsoon will be positive for markets. Despite two bad monsoons, the CPI has been steadily coming down because the government has managed the food economy well. A good monsoon should lead to a faster cooling down in CPI to a sub -5% level. A good monsoon will have a positive impact on rural consumption. Predictions are for a normal monsoon this year, which should lead to an immediate jump in rural consumption. The twowheeler, commercial vehicle and agri sectors are seeing increasing demand. Birla Sun Life Insurance is looking to invest in two- wheeler, commercial vehicle and agri sectors, as a good monsoon is expected to lead to an immediate jump in rural consumption.

Besides the monsoon, I see two other domestic triggers. Firstly, the second half of the year should see a rate cut from the RBI. Low inflation as well as better monetary transmission should create the right structural environment for a further 25 bps rate cut. Secondly, the reform process is gathering momentum. The recent liberalization of the FDI regulations across various sectors will be able to attract increased capital flows. The passing of the GST Bill in the next few weeks also seems to be a distinct possibility. The immediate key worries on the global front are Brexit, the prospect of further tightening by the US Fed, rising oil prices and slow Chinese growth. Brexit and Fed tightening could lead to the rupee weakening and some reallocation out of Indian equity. Oil prices have also begun to firm up, and this could have some impact on our current account and fiscal deficit, though this would be marginal. Weak Chinese growth also has global investors worried.

Equity should give returns in the range of 12% to 14% this year. The equity markets are not very expensive and trade at 16 times 2017 earnings and 14 times 2018 earnings. Earnings growth is back on track and 2017 - 18 should see a 14% to 18% earnings growth. Investors should, therefore, be very positive on equity from a Markets have three concerns due to Dr Rajan’s decision to not take up a second term — first, a change in stance on the anticipated rate cuts. Second, an FII sell off in the bonds market and, third, a large depreciation in the rupee. Markets have been anticipating a rate cut in the second half of this year. This cut will be contingent on a normal monsoon and CPI inflation remaining around 5%. As far as FII outflows are concerned, the Reserve Bank of India (RBI) has been providing liquidity to the market through OMOs (open market operations), and there should not be a big challenge to bond yields. RBI is bound to intervene in the currency markets to curtail excessive volatility, and this will be easier now, given the large forex reserves.

The impact of a poor monsoon on the economy is, to some extent, overrated. In a good monsoon year, food grain production averages at around 260 million tones (MT), and in a bad monsoon year at around 250 million tones — not a very significant difference. However, there is little doubt that a good monsoon will be positive for markets. Despite two bad monsoons, the CPI has been steadily coming down because the government has managed the food economy well. A good monsoon should lead to a faster cooling down in CPI to a sub -5% level. A good monsoon will have a positive impact on rural consumption. Predictions are for a normal monsoon this year, which should lead to an immediate jump in rural consumption. The twowheeler, commercial vehicle and agri sectors are seeing increasing demand. Birla Sun Life Insurance is looking to invest in two- wheeler, commercial vehicle and agri sectors, as a good monsoon is expected to lead to an immediate jump in rural consumption.

Besides the monsoon, I see two other domestic triggers. Firstly, the second half of the year should see a rate cut from the RBI. Low inflation as well as better monetary transmission should create the right structural environment for a further 25 bps rate cut. Secondly, the reform process is gathering momentum. The recent liberalization of the FDI regulations across various sectors will be able to attract increased capital flows. The passing of the GST Bill in the next few weeks also seems to be a distinct possibility. The immediate key worries on the global front are Brexit, the prospect of further tightening by the US Fed, rising oil prices and slow Chinese growth. Brexit and Fed tightening could lead to the rupee weakening and some reallocation out of Indian equity. Oil prices have also begun to firm up, and this could have some impact on our current account and fiscal deficit, though this would be marginal. Weak Chinese growth also has global investors worried.

Equity should give returns in the range of 12% to 14% this year. The equity markets are not very expensive and trade at 16 times 2017 earnings and 14 times 2018 earnings. Earnings growth is back on track and 2017--18 should see a 14% to 18% earnings growth. Investors should, therefore, be very positive on equity from a medium- to long term perspective. Equity markets have moved 7% from the beginning of this fiscal and we should see a further gain from these levels.

There was a fair amount of money that was collected under ULIP funds. If you look at domestic inflow, you will see strong inflow from mutual funds and insurance in April and May to the tune of $1.5 billion. Foreigners were sellers in January and February while they are buyers after that.