Equity markets in January 2020
● The large cap oriented Nifty was down -1.7% for the month and the Nifty Mid-cap index was up 5.3% for the month.
● The S&P 500 (US Markets), in INR terms was also up 1.9%.
Debt markets in January 2020
● Median returns of the Top 10 liquid funds averaged 5.1 %, down from the past year as interest rates have been coming off.
● Government bond yield inched up marginally in January, as the reduced tax rates led to concerns on fiscal deficit and the possibility of the government increasing its overall borrowing program.
Factors affecting markets
1. While the Nifty was down in Jan 2020, broader markets remained up, despite continuing economic weakness. Some of the optimism was led by expectations of several positive initiative expected in the budget, with the Prime Minister directly getting involved and interactive with industry leaders to solve genuine issues faced by the economy.
2. Moreover, there is some de-escalation in the trade war between US & China, leading to better outlook on the global economy. The IMF also reaffirmed this.
3. Fiscal deficit and economic growth are twin concerns facing the economy. Experts have been recommending loosening up fiscal targets and focusing on economic growth. Moreover, there seem to be early signs of the economy recovering. Several key reforms like GST, NCLT, Banking system related issues, PSU divestment, etc should have long term positive impact on the economy.
4. Despite the economic weakness, the large cap oriented funds have been doing well and are expected to deliver growth in terms of long term equity markets returns . Investors with a long term view of markets have benefited from growth in NAVs in these funds. Debt mutual funds with controlled credit risk have also performed fairly well over the past few months.
Indian Mutual Funds Industry
With a total asset base of nearly Rs 28 lakh Cr ($ 405 billion), the Indian mutual fund industry has come a long way over the past 25 years, when the private sector was allowed to manage money on behalf of retail investors.
• 43.7% of assets are in debt funds, with liquid funds dominating the category. Liquid funds have provided fairly stable and reliable returns over time, with very little credit risk. Note that institutional investors, who mainly have current accounts, use liquid funds to get some better returns on the surplus cash.
• 27.9% of assets are in equities, which is predominantly dominated by individual investors. With Rs 8 lakh Cr invested in equities, the category is definitely catching up with retail investors as a long term inflation-beating asset class.
Despite economic weakness, large cap oriented funds have been doing well and are expected to deliver growth in terms of long term equity markets returns. Investors with a long term view of markets have benefited from growth in these funds.