The fear surrounding the Indian stock market has evaporated, and foreign institutional investors (FIIs) have returned, according to ICICI Prudential AMC’s S Naren. The market is somewhere between a state of greed and fear, and is in a moderate return environment, Naren said. On the macro picture, he said inflation worries are lower, adding that the improving digital footprint has boosted tax collections. Looking ahead, there will be volatility in the market over the next 12 to 18 months, due to India’s election cycles, so hybrid funds and systematic investment plans are the way to go, Naren said.
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Exactly a year ago there was fear, there was no excitement, and there was low participation. Now there is perhaps concerns getting addressed, FIIs are back and in terms of fear the fear has evaporated, what do you make of the current market setup?
I think we are in the middle that is the challenge that you do not have a situation where I do not think we are in greed, if you have greed you will have huge local mutual fund inflow. If you look at the mutual fund inflow data in April it was one of the lowest in recent times and if you look at most of the new fund offers the new fund offer collections are also not very high. So we are not in greed situation like what we had in 2021, so we are neither in greed nor we are in fear so we are somewhere in between so we are in a moderate return environment is what we think at this point of time. So we do not need to be at two extremes always we can be somewhere in between also, is not it. On the macro picture what is your take, worst of inflation is behind us would you agree that and if that is true what does that mean for equity and bond market?
I think the macro picture is fantastic if you ignore anything that can happen in future because if you look at the current account for example which is one of our most important indicators, we used to fear about current account last year in this phase and the trade deficit which we look at not just goods, we look at goods and services put together that number was looking pretty negative.
And over the last three-four months if we look at trade plus services that number looks much more comfortable that we have ceased to worry about current account so that is one thing which is gone. If you look at inflation I would say that inflation worries are lower but in the way inflation index is constructed we have to keep in mind that we are talking of just ahead of monsoons and people are scaring us on account of El Nino and things like that, so that we have to little bit worry about monsoons.
But at this point of time oil is the other product we always worry. Oil, coal, fertiliser is a basket I think where the worry has kind of disappeared. So I would say that in fact OPEC is supposed to cut production to maintain prices so which means that we do not need to worry about it, so I would say that that is a worry which is lower.
I think the superb steps taken by the government in terms of improving the digital footprint to improve compliance in direct tax kind of GST collections that we are getting at this point of time have certainly helped tax collections.
So on the whole, I would say the macro is the biggest positive at this point of time. And I would say that unlike other countries which overdid the fiscal and monetary bit in 2020-2021, we did not and that is why we do not have the inflation problems that the western world is bearing it over the last one year that is why the macro is not a problem at this point of time.
In the overall scheme of things, what to your mind will be the importance of the election cycle? Simply because today some, we are acknowledging it, six months from now few will start talking about it, and in May 2024 everyone will talk about it.
If you look at 2003-2004, 2008-2009, 2013-2014, 2018-2019, you had a situation where all the years you had volatility and what that means is clearly, I mean funds which benefit out of volatility like hybrid funds will definitely benefit because you have seen volatility in all the election years.
And there is absolutely clear that volatility is a given in election years. If you go back and look at 2003-04, 2003 markets were dirt cheap. And 2003 market, we are not seeing at this point of time because market is no longer as cheap as they were in 2003. They are much-much more overvalued compared to 2003 to factor in 2003-2004 is impossible.
So I would say when you think of the election cycles, we have to believe that we are going to have some amount of volatility in the next 12 to 18 months. And that is why for us, both systematic investment plans and hybrid investing for lump sum, which is categories like aggressive hybrid equity and debt, balanced advantage, multi-asset, equity savings are the way to go for the next 12 to 18 months along with systematic investment plans and systematic transfer plans.
This is because volatility is not going to go away in the next 12 to 18 months both for global reasons due to the Federal Reserve and due to local reasons because of higher valuations and that is how we think when we look at where we are today.