The Bank of America Merrill Lynch Global Fund Manager Survey in February said that “70% of investors now believe the global economy is in ‘late cycle’,” which indicates that it is possibly heading to a downturn.
The survey released on 13 February said the “late cycle” is the highest since January 2008, a few months before the peak of the financial crisis or recession. Earlier on Monday, Ray Dalio, founder of Bridgewater Associates had also warned that the risk of a recession between the next 18 to 24 months is rising, partly due to how and when the US Federal Reserve decides to raise interest rates.
Though the concerns are raised at a time when equity markets across the globe saw a sharp correction in last few weeks after a strong rally in 2017, Indian fund managers think it is too early to sell equities on expectations of a downturn.
According to Ritesh Jain, chief investment officer at BNP Paribas Asset Management India Pvt. Ltd even if “late cycle” in global economy sees outflow of FII money from India, local investors will support domestic equities.
“In India, money will move to fixed income from equities only when deposit rates rise to attractive enough levels for savers,” he added.
Foreign institutional investors (FII) have bought Indian shares worth $1.27 billion while domestic institutional investors including mutual funds and insurance companies pumped Rs7,160.73 crore in local shares so far in 2018 despite the sharp correction in markets this year.
He, however, thinks that the “late cycle” may see a shift of smart money from equities to fixed income globally simply because one asset will become cheaper than the other.
Jain said, “Goldilock economy is best for every asset, which was prevalent from 2013 to first half of 2017. Across the world, real estate, fixed income and equity all did well because there was abundant liquidity, no credit demand, inflation was benign. Now, central bankers are starting to withdraw that money and raise the rates. So, it will lead to rise in volatilities as seen few days back but it is too early to sell equities.”
Navneet Munot, however, feels that unwinding of global monetary easing and rising yields may have some impact on FII flows in India and emerging markets but it may not be at an alarming rate.
Ajay Bodke, chief executive and chief portfolio manager at brokerage Prabhudas Lilladher Pvt. Ltd, said that the portfolio churn towards bond from equities is expected in the US but in India the transition is likely to be on the margins.
“Capital gravitates to those markets where there is growth and India is expected to grow at a fastest economy in the world and cusp of earnings revival. Hence, Indian equities will always be attractive to foreign investors,” he added.