January 13, 2018

Will 2018 Be As Good as 2017?

What’s for 2018?

For one, I don’t think making money will be as easy in 2018. This has been a brilliant year for everything, even random portfolios. It’s been a year of excesses, in terms of returns, as capital ran towards equities in a strong way. It’s seen returns come more from more buying, than from earning increases that would have raised valuations. The P/Es of all indexes are at near term, or all-time highs, meaning that we are paying more for stocks than ever before. This situation doesn’t tend to last, and while it may still go up a lot more before it reverses, it won’t end very well.

Does that mean we exit stocks? No. We keep a healthy debt and equity allocation, and continue to ride through. And then, as some under-covered stocks are found, they will be useful additions to portfolios.

What’s bothering is the government’s borrowing situation. Yields are up to 7.34% from about 6.4% in the early part of October. And this, after a rate cut from the RBI. There’s a distinct feeling that the government will have to borrow hard to finance the bank bailouts, and indeed, other expenses. Borrowing in the last quarter has gone up marginally, but the budget may spring more surprises.

And yes, there’s the budget. Which will come in Feb. Which will be the last budget of this government, before the 2019 elections. This was supposed to be a strong budget that cut taxes. Because that was what was promised. And more expenses, like infra spending and others. But in the light of higher yields, can the government afford to earn less revenue and spend more? And without this, would this even be the kind of blockbuster budget people are looking for?

Read more at https://capitalmind.in/2018/01/happy-new-year-2018-nifty-28-run-will-2018-good/

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