The Indian economy has witnessed a structural shift to lower inflation levels and investors need to realign their expectations accordingly. Manish Gunwani, chief information officer, equity, Reliance Nippon Life Asset Management, talks about why the primary debate for investors is whether to go with a growth strategy or look for value with a better risk-reward ratio.
What are the primary narratives that will drive the equity markets now that the impact of the general election is behind us?
From a medium-term perspective, there are a few trends that will be important. One factorthat is core to the economy, capital markets and life in India is the structural move from a high inflation country to a lower inflation one. For the last 30 years, the consumer inflation has been at 8-9%, which helped nominal gross domestic product (GDP) growth of 14-15%. This was mirrored in the Sensex returns of 15%. This also meant that there was a rupee depreciation of 4-5%, because over the long term, currency valuation is about the inflation differential. The structural movein consumer inflation to 4-5% essentially means that nominal GDP is likely to be in the 11-13% range, and equity market returns will also be in line with this.
