HDFC MF expects strong economic, earnings growth in 2019; trade war among key risks

Trade wars, a rise in oil prices, a sharp increase in the US rates, sharp deterioration in local and FII flows, and a setback to NCLT (National Company Law Tribunal) may pose key risks to the domestic equity markets, HDFC Mutual Fund said in Year Book 2019.

The fund house also expects a slew of positives such as macro-economic indicators remaining stable, improving earnings outlook, among others.

The year gone by was eventful with a sharp rise in oil prices followed by a dramatic fall, resolutions of large NPAs under Indian Bankruptcy Code (IBC), a 50 basis points policy rate hike by RBI, liquidity concern with NBFCs, change of guard at RBI, muted inflation led by lower food prices, rupee depreciation, farm loan waivers by few states among key local events. Globally, escalation of trade war, rise in US rates and yields, turmoil in Italy, Brexit, China growth slowdown, also made the headlines.

The fund house noted with central elections round the corner, investors are bound to be hesitant but the long term impact on the market may be minimal.“Based on empirical evidence, it has been observed that elections do not impact market returns in the long run,” HDFC said in its Year Book 2019.

The fund house believes any intermittent volatility should be used as an opportunity by patient investors with medium to long term outlook.

In terms of earnings growth, HDFC Mutual Fund estimates EPS growth at 17 percent CAGR (Compounded Annual Growth Rate) over FY18-21E.

“Markets are trading at CY20(E) P/E of ~14x and market cap to GDP ratio of 62 percent CY20E,” the report stated.

The largest asset manager said strong profit growth outlook, steady local flows, and reasonable valuations have led to a positive view of markets.

As at December end, the assets under management of HDFC Mutual Fund stood at Rs 3.35 lakh crore, up 9 percent over the previous quarter.