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Business News/ Money / Calculators/  The journey is unlikely to be a straight line as markets are fairly valued
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The journey is unlikely to be a straight line as markets are fairly valued

Equity markets are fairly valued and don't expect a secular rise, says Shah

S Kumar/MintPremium
S Kumar/Mint

Equity markets are fairly valued, says Nilesh Shah, managing director, Kotak Mahindra Asset Management Co. Ltd. What does that mean? Don’t expect a secular rise in markets as there will be few vital signs that would determine where markets would be. But systematic investing should continue.

What are the warning signs that investors should watch out for ?

The financial year (FY) 2017-18 is likely to be rewarding for disciplined investors. In four out of the last five financial years, the CNX Nifty index has delivered positive returns. With strong economic fundamentals reflected in lower single-digit inflation, current and fiscal deficit and higher single-digit gross domestic product (GDP) growth, equity markets are poised for positive returns in FY2017-18.

The journey is unlikely to be a straight line as markets are fairly valued. Investors need to keep in mind following warning signals for FY2017-18:

•What steps the government takes to accelerate economic growth: management of non-performing assets and recapitalization of banks, labour reforms and improvement in ease of doing business can accelerate growth.

•Quantum of hike in the US Federal Reserve’s rate: markets have discounted two to three hikes in the calendar year (CY) 2017.

•Global risk appetite: events like European election, Italian banking crisis, and the US trade policies.

•Width and depth of earnings recovery in FY18 and beyond.

Equity as an asset class has been volatile in the past 3-4 years. What should investors do?

Regular investments, asset allocation and long-term investments are tools for navigating equity market volatility. A good financial adviser can anchor investors in volatile markets.

The investor should hire an appropriate financial adviser and chalk out a financial plan based on her risk profile and investment needs. She should make regular investments through systematic investment plans for the long term and maintain asset allocation. Investing is like planting a mango tree. You have to plant a good seed in fertile land. You need to water it regularly and remove the weeds. You need to give it a period of 12 years before you can taste delicious mangoes.

There have been credit-related accidents in the Indian mutual funds industry. Does the industry have the capability to analyse credit?

Very few credit-related events have occurred in the mutual funds industry as compared to banks, insurance and non-banking finance companies. The mutual funds industry has robust credit evaluation processes.

More importantly, the funds industry also has the ability and willingness to enforce security in case of a credit event.

All credit-related events have occurred based on investment philosophy of the fund house and it will be unfair to judge the entire mutual funds industry based on isolated events.

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Published: 04 Apr 2017, 05:06 PM IST
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