Despite rising inflationary pressures, high oil prices and FII outflows from the market, India has been among the best-performing large economies in the world owing to robust domestic demand, vibrant manufacturing and services activity, healthy credit growth and domestic liquidity, said PL Wealth in its latest market outlook report.
The economic performance of India continues to be strong, with the manufacturing and service PMI figures of 55 and 59.8, respectively in May. This is far better than that of most other major economies around the world.
The active participation of domestic institutional and retail investors has been instrumental in stabilising markets despite the high outflow of FIIs.
However, the increase in crude oil prices, ongoing political instability in West Asia and inflationary trend will cause market volatility in the near future, it said.
Inderbir Jolly, CEO, PL Wealth, said, “India continues to be an outlier among the leading economies of the world because of the robust domestic economic growth engines like consumption, production, infrastructure spending and the growing trend of savings being financialised.”
In spite of global uncertainty, high oil prices and the threat of inflation, India’s structural growth story is still intact, he said.
Inflation risks
Even when the headline inflation remains manageable, the rising energy price, currency depreciation and supply side pressures might pose problems in the coming quarters.
As per the report, short-term earnings revisions are still under pressure in various sectors because of increasing cost of production and a difficult global backdrop.
In the short term, markets are expected to be range-bound and react to events based on crude oil prices, inflation trends, monsoon trends, geopolitical happenings and changes in earnings expectations. Investors will be able to invest in quality large-cap stocks and large and mid-cap strategies on a staggered basis.
The report stated that the fixed income investing environment had become tougher with higher inflation expectations and high-interest rate environment.
PL Wealth believes that the investors must concentrate on short-duration and medium-term fixed income investment avenues that provide decent risk-reward.
According to the report, gold is gaining importance as a strategic reserve metal against the backdrop of rising geopolitical uncertainties and ongoing concerns about inflation.
Over the short term, rising real interest rates and appreciation of the US dollar may cap any upside move in gold prices. Silver, on the other hand, is expected to exhibit volatility, it said.