Birla Mutual Fund expects equity markets to deliver 13 per cent return this year on the back of revival in corporate earnings growth and reversal in foreign inflows despite many challenges, both on the domestic and global fronts.

The foreign inflow into equity markets has turned negative for the first time in the last six years. Foreign portfolio investors have pulled out $4.6 billion from equity markets last year against investment of $7.73 billion in 2017. Strong dollar and increasing yield in the US, besides lower rate hikes in emerging markets and high crude oil prices drove them to pull back money. However, the slowing US economic growth and liquidity constrains due to tightening quantitative easing may make fund mangers to be selective on their fund allocation.

Returns from most asset classes turned negative last year, except for Nifty which has delivered a return of 3.9 per cent, though in dollar terms it was -5 per cent against 37 per cent in 2017.

Return from the NSE Midcap index was down 15 per cent and the NSE Smallcap index dipped 29 per cent in 2018.

Mahesh Patil, Co-Chief Investment Officer, Birla Sun Life Mutual Fund, said earnings growth of Nifty constituents is expected to be about 24 per cent (15 per cent excluding corporate banks such as ICICI Bank, Axis Bank and State Bank of India which are coming out of lower base) though there would be near-term pain for NBFCs and wholesale-oriented banks.

The General Elections will cloud the economic and market outlook in the first half of this year but foreign investments generally pick up after uncertainty over elections clear. Generally, he said, performance of market six months before and after elections has always been positive.

Reforms in realty

Clearly, he said, elections may lead to short-term blips, but the market reverts to fundamentals shortly thereafter and market performance will be driven mainly by the strength of the economy with banks, select NBFCs and consumer durables being major drivers for this year, said Patil.

Balance sheets of banks are getting repaired with insolvency proceedings and credit growth is expected to remain strong as banks step in for NBFCs which are facing liquidity constraints. Though the housing sector faced challenges last year, reforms such as RERA and focus on affordable housing may drive investments in this sector over the next few years, he said.

The government is continuing its investment in infrastructure development, particularly in the Bharatmala road project and dedicated freight rail corridor. Private sector capital expenditure should start with capacity utilisation rising to optimal levels, said Patil.

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