In 2018, equity markets were challenging for money managers. The performance of fund managers widely varied. We have not seen such a phase in the last many years. Despite that, the SIP numbers kept growing. In the last four years, the mutual fund industry has built the SIP momentum quite nicely. SIPs have become mainstream. The same momentum is likely to continue in 2019.
Last year, there were many macro concerns. Apart from the domestic issues, we also had to worry about the oil price, currency and current account deficit. In 2019, it looks unlikely that we will have to worry about any of these. Macro challenges due to global issues seem to have eased.
Market is always driven by two things: the earnings outlook and optimism. I think optimism is coming back and the earnings will follow. The companies in the retail space should do better. A lot of push has been given to rural consumption.
The IL&FS default was a one-off event. It could have been solved if the respective authorities were more proactive. IL&FS needed Rs 4,000-5,000 crore of liquidity support and if it could have managed to get that, the company could have survived. But its impact doesn't seem to be lingering on. The option of side-pocketing has already been provided to the mutual fund industry to handle such situations. But yes, the event had an impact on the economy, NBFCs and infrastructure companies. But it started to cool down in December with the RBI's support and most of the NBFCs managed to bring the asset-level mismatch in control.
What should a fixed-income investor do in 2019?
Fixed-income investors are likely to be in a better position in 2019. The rate cut looks doubtful but there would be a stability in the interest rates. A rate cut should anyways not be a reason to invest in fixed income. One should invest in fixed income to maintain the required level of stability in one's portfolio. The favourable taxation in the form of indexation would continue to make debt funds superior to fixed deposits or other such schemes.
Going ahead, we need to streamline our direct taxes the way it has been done for indirect taxes through GST. Equity investments should be made more attractive from a taxation perspective. Also, there is a need to increase the disposable income so that consumption can go up.
This article was originally published on February 05, 2019.
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