If Union Budget is populist, it will hurt Indian equity returns: Expert
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Ridham Desai, Head of India Equity Research & India Equity Strategist at Morgan Stanley, feels that the domestic equity market ended on a flat note in 2016 but 2017 looks better for equities as an asset class compared with other asset classes.Desai also said that there can be a shift in investor preference from bonds to equities. The rule, he feels, is that the bonds become less attractive when interest rates climb and inflation expectations pick up, which could be the situation in the US in 2017.
"I see a case for shift in asset allocation from bonds to equities," Desai told ETNow.
He expects falling share on emerging markets (EMs), but said India has biggest overweight position in his scheme of things.
He also sees up to 15% returns from Indian equities in 2017, but investors need to look at stocks with right valuations before taking a call. Managing risk will be important. More importantly, investors should buy stocks where valuations are attractive, he said.
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Another important event, that investors are betting on is the
Due to the demonetisation drive, the underlying demand conditions are very good, but there has been a temporary lull. However, the demand is expected to come back sooner than later.
When asked what will work in 2017, Desai said that the golden rule is: the point of maximum return equals the point of maximum uncertainty and vice versa.
"You cannot make money in stocks unless there is uncertainty," said Desai. If everything becomes certain, then stocks are priced fully. The market is always forward looking and we saw that in December, when growth stocks actually did very well. I think the market is looking at growth turning around. If growth stocks become reasonably priced, they will be bought and that is exactly where we are right now," Desai told ET.
He alsp said that growth stocks are looking more reasonably priced than they have been over the past two or three years and they will be purchased when valuations look attractive.
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He also feels that there are few things that are in favour of India right now. Global growth seems to have stabilised, which was working against us for the past two years. That should provide some tailwind to growth.
"Domestic demand is looking better. Keeping aside the temporary blip from the currency exchange programme, the worst will be behind us soon. So domestic demand will recover, but private capex may still remain weak for some more time," Desai told ET.
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