Expect returns in the mid-teens: Sunil Singhania

In the past one year, there have been lots of positive changes. All macro economic factors are turning positive. We have a stable government, and the fiscal deficit and inflation are coming under control. One can look at the market and expect reasonable mid-teens kind of returns in 2015.

However, an equity investor should never have a one-year investing horizon. The previous cycle lasted six years. We are only six months into the current one; it could play out over the next five years. We are positive over the next few years, primarily due to three main factors. One is improvement in the macro economy. Second, the non-linear events, such as a drop in crude oil prices and the election verdict. The third is earnings growth. In our view, between 2014 and 2020, earnings can almost triple. Sensex EPS is likely to increase from Rs 1,350 currently to anywhere between Rs 3,500 and Rs 4,000 by 2020. If you remain invested for the next five years, it is likely the Sensex will trade between 55,000 and 80,000. India has a very good chance of becoming a $4-trillion economy in five to seven years.

At current valuations, the market is not cheap but if you wait for the events to unfold, it might be too late. A major challenge could be volatility in the global financial market. As a nation, we are reliant on foreign flows in both equities and fixed income. If such challenges come up, then as an economy, we will be impacted. The other concern is the failure to implement reforms. There are a lot of expectations from this government. However, if execution fails, there is going to be a risk.

Sunil Singhania,
CIO, Equity, Reliance Mutual Fund