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The Indian economy faced some challenging macro headwinds for the better part of 2018 such as high volatility in crude oil prices, sharp depreciation of the INR, liquidity crunch in the NBFC sector, FII outflows, the US-China trade war and quantitative tightening by the US Fed. However, towards 2018-end, many of these macro-economic conditions have turned supportive. Overall, We expect decent returns from the Indian market in CY2019 on the back of supportive macro-economic variables, strong earnings growth and sticky domestic flows.
Economy Outlook: In 1QFY19 and 2QFY19, GDP grew by 8.2% and 7.1%, respectively. The cyclical recovery in 1H2019 was due to a low base of 1H2018. Despite fears of emerging market contagion and the US-China trade war rhetoric, India is expected to grow at 7.3% in FY2018-19. India’s favorable demographics continue to support growth from a long-term perspective with India remaining one of the fastest growing economies in the world.
Debt Outlook: While 2018 turned out to be a wash-out for fixed income, the outlook for 2019 appears much brighter at the start of the year. Even as macro headwinds remain strong, the momentum seems to be turning decisively positive, though major headwinds of 2018 seem to be turning into tailwinds.
Equity Outlook: We expect decent returns from the Indian market in CY2019 on the back of supportive macro-economic variables, strong earnings growth and sticky domestic flows. Over the long term, the India growth story remains compelling, driven by favorable demographics. In the medium term, some of the structural reforms like GST, IBC, empowerment to rural masses with Direct Benefit Transfer (DBT), improvement of basic infrastructure in rural areas (power, cooking gas, housing, sanitation, etc.) along with the massive USD 5 tn infrastructure spending program should help maintain growth.