There are indications that slowdown in economic growth has seen the bottom and we might soon move onto the growth path, albeit in a slow and steady manner. Interest rate reduction, combined with liquidity will increase the pressure on banks to step up their lending in the ensuing months in order to earn better income compared instead of lending, either in the overnight market or l to RBI or keeping the investment in short term papers, said A. Balasubramanian, MD and CEO, Aditya Birla Sun Life MF.
Mahesh Patil, CIO - Equity, Aditya Birla Sun Life AMC
Over the past two years the market has been polarized due to a narrow rally limited to a handful of large cap stocks while broader market has not performed. Investors were risk averse given the tight liquidity and crises in NBFC sector.
However, Indian economy has bottomed out and should see gradual recovery in future, as the worst is behind us.
Considering current valuations, risk-reward is fairly balanced and returns over a 1-year timeframe could be in the high single digits.
But, market can offer reasonable returns to long-term investors as the economy recovers. Any correction in the market should be bought into while maintaining a balanced asset allocation.
Bad loan resolutions are progressing under IBC, new stress loans formation has reduced and bank balance sheets are getting repaired.
Also, worst of the funding crisis for the NBFC sector seems to be behind and with NBFCs improving their funding profile, tail risks on system stability are unlikely.
Post the elections, government spending is picking up pace which should also add more money in domestic circulation.
Corporate earnings growth in India, which was depressed earlier, is likely to pick up in line with improvement in the economy. As the economy recovers, earnings growth of mid-and-small cap companies should also pick up as they have a higher linkage to the domestic economy.
Nifty 50 earnings growth for 2020-21 is projected to be around 23%. Sectors such as auto, telecom, corporate banks, and pharmaceutical companies which had seen a cyclical downturn could see a recovery.
The rural economy has been negatively impacted for some time but should see a revival considering the strong monsoons and higher agricultural prices. Any government stimulus, possibly in the budget, would also help to boost consumption.
While large caps should continue to do well, mid-and-small caps could catch up and their relative underperformance can reverse.
Overall, 2020 is likely to be a year of consolidation as the economy and earnings catch up with the markets as the broader market starts participating.
Maneesh Dangi, CIO – Fixed Income, Aditya Birla Sun Life MF
Global growth is expected to witness a moderate rebound in 2020. The uptick is expected on the back of cyclical rebound in global manufacturing, easier monetary policy conditions creating easier financial conditions and easing of global trade tensions
We are also positive on India’s growth revival and a near term cyclical upturn looks quite likely, aided by substantial policy easing, positive global growth tailwind and potential easing of credit stress. The risks to our outlook are mostly geo-political in nature.
RBI is continuing to maintain an accommodative stance. In addition, rate transmission, which typically takes 6-12 months, should start reducing the cost of borrowing.
On the lending side, surplus liquidity and pressure on margins should drive banks to start lending which will lead to gradual improvement in credit growth.
So our base case is that spreads begin to inch higher in the first quarter of the year. Eventually, high inflation, proximity to terminal repo rate, improving growth conditions and fiscal stress will mean that even govt bond yields move higher in 2020.
