Equities in 2017

What will be the outlook for equities in 2017?

As a New Year dawns, it is worthwhile to evaluate the outlook for equities in the coming year. While there may not be too may triggers for an all-out rally in equities, the year 2017 could actually belong to equities as an asset class, in more ways than one. Here is why…

Return of US demand… 

If Trump has his way then we could the see the return of US consumption. Lower taxes and a massive $1 trillion investment in infrastructure will mean big opportunities for global companies. India could be one of the key beneficiaries. While Trump has been extremely negative about trade with China, he is a lot more neutral in his attitude towards India. That should be helpful in case of industries like IT and pharma which are largely US dependent. A strong dollar could ensure a great year for dollar defensives.

Low rates will be the key… 

We expect rates to be low on two fronts; inflation and interest. Both are conducive to positive returns from equities. For 2017 inflation is likely to remain subdued as a smart pick-up in agriculture and the impact of demonetization could keep inflation in check. With banks flush with liquidity and US rate differential not a major issue, Indian interest rates may be headed downward. That will mean better valuations for equities in 2017!

Mid-caps will be the story…

There could be a whole lot going in favor of mid-caps. Notwithstanding the OPEC oil quotas, we do not expect oil prices to shoot up substantially. That is because US shale is likely to bring in enough supply to put a cap on prices. Low oil is positive for mid-cap stocks where the dividends of cheap oil are immediately visible. Secondly, the year 2017 is likely to be about specific themes. One of the big themes could be the shift to great digitization of financial transactions and a variety of services to support the electronic payment highways. This could mean large opportunities for Indian mid-cap companies. The recent correction may have made them a lot more attractive.

Adopt a phased approach…

The most important thing is to adopt a phased approach to equity investing. While equities are expected to outperform as an asset class, there will be immense volatility. That will mean pockets of opportunity will emerge intermittently wherein you can buy good stocks at reasonable prices. A phased approach will help you achieve this better. Also, the phased approach will help you reduce your average cost of holding equities via rupee-cost averaging. A phased approach will ensure that you have liquidity available with you when those rare desperate opportunities present themselves! ©

Religare Online provides the latest news and announcements in the Indian Share Market

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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