“We need to moderate our expectations of equity returns this year. Equities should give mid-teen returns in 2015. One needs to be cautious of the volatility while investing,” said Harsha Upadhyay, chief investment officer – equities, Kotak Mutual Fund during a presentation to the media.
But even at lower returns, Indian equities will continue to outperform other equity markets
as investors confidence in the economic turnaround continues unabated.
“India will continue to get a higher share of the global liquidity even if there is a squeeze in liquidity,” said Upadhyay. Foreign portfolio investors have so far this year invested around Rs 33,046 crore.
Last year, they had invested about Rs 97,349 crore in Indian equities. Valuations in equity markets continued to rise due to the global risk-on environment, Kotak MF said.
However, corporate earnings growth could disappoint in the near-term, the fund house said as the full impact of the economic recovery and the rate-cut cycle started by the Reserve Bank of India (RBI) will only start reflecting from FY-17 onwards.
Markets are expected to seek valuation comfort from improvement in the macro-economic environment and the investment done by the government. In fact, over the next 18-month period, the big-ticket investments will have to come from the public sector, the fund house noted.
Kotak MF estimates that the earnings growth at 16% (2-year CAGR) will be the strongest among countries like US, UK, China, Thailand, Singapore and others.
“We may not see a return to historical growth rates anytime soon but we will perform better than most economies,” Upadhyay said.
Further, he said that 2015 could be the first year in five when foreign portfolio investors and domestic investors could both be net-buyers of equities.