The year has begun on an optimistic note for Indian equities. Investors continue to favour equity over other asset classes. The coming weeks will see the market take cues from events in the US, as the baton of Presidency changes hands.
Never before in recent times has there been such intense speculation over how drastically things drastically change in policy making. Major exporting industries are waiting to see the new incumbents’ stance and to assess how they need to adapt to the changing times. Investors are also curious to know what changes they need to make in their portfolios. Currencies have generally been weakening against the dollar right from the day the US election results were declared. There has been a significant flight of capital back to the US from several emerging markets. It remains to be seen if this trend gains further momentum or turns soft after President Trump assumes office.
The China angle is another dimension that would need far more clarity as Nations grapple on how to deal with the impact of China’s policy responses to the US. Overall, it is a very fluid situation that will gradually become clearer as the year progresses.
Equity valuations are generally elevated across markets. In pockets, there is extreme over valuation. The coming year will see businesses that need growth capital aggressively raising capital. Also, we will see venture capitalists and promoters actively sell stakes through Offers for sale and private placements. The institutional imperative to deploy capital will support capital raising as long as domestic flows remain strong.
Overall, it promises to be a year of fast paced moves, higher capital flows, bigger requirements for capital, and lower returns. It remains to be seen how equity investing adapts to the emerging fast changing scenarios.