The Indian economy is witnessing signs of recovery in domestic consumption but investors need to be prepared for another correction in the market, according to Piper Serica Advisors' Managing Director Abhay Agarwal.
"There are signs of recovery in domestic consumption. We did some channel check conversations this week where we found that cement companies are seeing a good uptake," he said.
"Inventory levels with auto dealers are at pretty low levels—about 15 to 18 days against 33 days earlier. So, if some demand keeps coming back and with the lean channel in inventory, we will see an uptick in consumption. Opportunities are emerging but investors will have to brace for further corrections," Agarwal added.
According to Agarwal, the support from domestic investors has been helping the market weather the slowdown in the economy.
Highlighting a key change in the way retail investors manage their money, Abhay Agarwal said domestic flows are likely to maintain a steady growth trajectory.
"Historically, about 5% of household savings annually found their way into the equity market, 70% went into real estate and that is changing a lot. What we are still seeing in terms of domestic flows is still pretty thin compared to what it could be. So, I am not at all worried about the reversal of domestic flows," he said.
"I think investors have also learnt that whatever the markets are, it is better to keep a systematic investment plan (SIP) in place. So, I'm pretty confident that domestic flows will continue. What will provide opportunities?" the Piper Serica Advisors' MD mentioned.
Commenting on the pullouts by foreign portfolio investors from the Indian market, Agarwal said it is not 'abnormal.'. According to him, this problem of FPI pullouts is not India-specific, as large investors are shifting their focus to the US for stability amidst growing volatility in emerging markets.
"A lot of money going back to the US and also the US market cap is at $65 trillion," he said.
The second factor behind FPIs having doubts about India is the fact that consumption has been on a decline, Agarwal mentioned.
"So the attractiveness for global investors looking at India was that it is a strong consumption market with a very large population that is consuming more and more. This is being put to the test at least in the short term,” he added.
The Piper Serica Advisors MD said that he doesn't foresee a change in this trend of FPI pullout till either "domestic demand comes back and also the US bond yields come off.".
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