As markets witness volatility, invest in short term funds

On the other hand, we are witnessing tail winds in the form of increasing economic traction in the domestic economy resulting in expectation of strong earnings and this has been complimented by robust domestic flows.

Clearly the confluence of the above has resulted in resurgence of volatility which has been absent for a while now. We see the overall environment as positive for risky assets, but expect muted returns and higher volatility going forward.

From a global stand point, optimism appears to be on the rise. A fiscal stimulus for the US economy through tax reform, a tightening job market combined with substantial increase in Federal borrowing has resulted in a sharp up tick in US treasury yields.

With this development we believe that the tailwind from an accommodative global liquidity condition is increasingly being challenged, as key central banks tighten monetary policy. This is likely to have a bearing on flows towards emerging markets.

Growth prospects for the Indian economy continue to look bright. This is evident from various high frequency data points. Increased economic activity will eventually get reflected in corporate profitability.

The building blocks of a domestic economic recovery seem to be falling in place. This appears to be led by both structural and cyclical factors. Clearly, the visibility of earnings recovery which had been elusive for a while now appears to be turning into reality.

There are early signs of normalisation after earnings experienced a subdued trend over the past couple of years. Our newly launched strategy “Renaissance India Next PMS” aims to capture growth through companies and sectors which have been head winded in the past but will see good up tick in the coming years.

We continue to advise a staggered approach to investing in equities with a view to commit more during any sharp corrections. In order to capitalise on the upcoming volatility we are happy to introduce you to “Avendus Enhanced Return Fund” which endeavours to generate equity like returns while keeping volatility lower than traditional equity strategies.

We believe that this proposition would certainly add value to your portfolio. Fixed income markets have been quite volatile in the last couple of months with ten year government bond yields moving between 7.1-7.8%.

The government and the RBI have announced a slew of measures to calm the bond markets. We believe that the RBI will be in an extended state of pause on interest rates.

Hence, we recommend investors to look at low maturity high accrual portfolios like short term funds, selected credit portfolios and ultra-short term funds. As such it is important to revisit your stated goals as well as asset allocation and stick to it in a disciplined manner. As usual this edition is rich with several articles to make your investment journey simpler.