Q2 GDP at 4.5% has come in line with the street expectation. The question now is how soon will the economy see a turnaround as the corrective action of fiscal and monetary stimulus come into play. The credit and deposit growth in the banking system is down to single digits. On the other hand, the CPI headline inflation is inching closer to the 4% mark, while the core inflation is below the 4% mark. Part of the slow-down is due to corrective action to change the longer term growth orbit.

For example, earlier the real estate sector was dominated by small developers taking consumers for a ride. RERA has brought-in accountability and helped in safeguarding buyers interests. As a result, developers are now changing their business model. The issue now is to release the trapped capital in the real estate sector. To address that, the government's recent Rs 25000 cr package to the sector may help in reducing the stress and unlock capital but effective implementation is required since the stipulations are stringent.

Likewise, the long pending NPA problem which was pushed under the banking sector carpet was brought to fore and a robust mechanism and resolution process was instituted. This helped in the cleanup of the balance sheets and prevented potential economic turbulence which was getting pushed ahead for the next generation to handle.

Similarly, the inefficiencies and leakages in social service sector were plugged using the JAM (Jandhan-Aadhar-Mobile banking) mechanism. Likewise, CPI inflation, high fiscal deficit, high current account deficit and interest rates were brought down through coordinated policy measures.

With so many productive measures, the slowdown in the economy is the result of the side-effect of the bitter but necessary medicine that had to be administered. The economy needs to be prepared for the new age.

Japan, Korea, Thailand, Taiwan, Singapore overtook us in the 60s, 70s, 80s. Then, even China came from behind and outperformed us in the manufacturing race in 90s and 2000s. Even war ravaged country like Sri-Lanka outperformed India in per capita GDP growth.

The government is trying to fix the engine, the tyre, the fuel flow etc while also driving the car. One series of reforms are done. But now other major structural changes would also need to be taken to bring economy back in high speed.

For any economy, access to cheap funding is the turbo fuel. We too need to do what has already been done in US, UK, EU, China, Japan and many other places. The interest cost for the borrowers must be brought down. At that, the banking system must be flushed with liquidity. Additionally, quick mechanisms must be found to remove NPAs from financial system while also professionalizing it.

Government / RBI has many tools available to achieve these objectives. And it is showing urgency in applying them. Also, procedures must be found so that piled up litigations don't end up disrupting vital projects. Pin-pointed sectoral packages may also be needed to resolve the bottleneck issues. Market has three compartments: Sensex it is at a lifetime high but midcap, as well as small caps, are both down between 20 percent and 40 percent from their respective lifetime highs in January 2018.

The market today may be pricing in the recovery of earnings growth - where the December 2019 quarterly growth may be better than September 2019 (and March 2020 economic growth may be better than December 2019). Already, the Reserve Bank of India (RBI) has pumped liquidity into the domestic banking system and interest rates are being cut. A positive step like a large public sector undertaking (PSU) divestment on one side reduces fiscal worries, and on the other side also confirms that the reform agenda of the government is a priority.

So put all these things together, the market expected that in September 2019 we may see growth bottoming out. Although the data for October'19 does not give confidence about growth bottoming out. Market is still pricing-in growth and earnings recovery in largecaps in the days to come.

Having said that, it's time to be cautious about valuation. What is looking very safe is not looking cheap and what is looking cheap from a valuation point of view is not necessarily safe (except for the last few days' rally). Small and midcaps across a variety of sectors provide you that comfort on the valuation. But one will have to be careful about valuations of the stocks, which they are investing in.

At the present juncture, we believe that investors may consider neutral allocation to equities asset with preference for small and midcaps within that portion. Lumpsum investors may invest in balanced advantage fund or use STP method to invest in equities. The present juncture of the market would require coordinated effort by distributors and mutual funds to help maneuver investors through this volatile period. We at Kotak mutual fund remain committed to serve this cause

Nilesh Shah (Managing director) Kotak Mutual Fund

EXPERT SPEAK - MARKET REVIEW

Equity Linked Saving Scheme (ELSS) is a type of mutual fund that is eligible for tax deduction benefits under the section of 80C of the Income Tax Act, 1961. Due to higher returns and lowest lock-in period in the tax saving category, ELSS has become hugely popular.

ELSS VS PPF

Since both the Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF) are saving schemes eligible for tax benefits, there is always an element of confusion among the investors in picking out one of the schemes. While PPF has been a traditionally popular investment option, ELSS is slowly catching up in the modern era due to higher returns. Further, the investors must know that apart from tax benefits there is nothing similar between the two schemes. The article aims to present a comparative analysis of the two schemes to help investors in selecting the right one for them.

Characteristic PPF ELSSRisk NO RISK (Guaranteed by GOVT) Moderately High (Invests in equity)Returns Moderate High – Equity compounds over the long termLock-in 15 years 3 years

Liquidity Low (Partial withdrawals after the expiry of 7 years from account opening year)

High ( Withdrawal at any time after the lock-in period)

Tax on Returns Exempt 10% on long term capital gains. Gains upto 1lakh exempted.Tax on Maturity Exempt Only gains are taxed as shown above

(Above Taxation Details are as per 2019-20 Taxation Policy of GOVT OF INDIA)

WHAT IS ELSS?

NPS is a pension scheme launched by Government of India. The scheme is regulated by Pension Fund Regulatory & Development Authority (PFRDA). An Indian citizen between the age group of 18 years and 65 years can join this Scheme.

HOW NPS WORKS? An employee, after joining NPS, contributes periodically either on his own or through his employer in his NPS account to accumulate corpus for the retirement. At the attainment of retirement age, the corpus is made available to subscriber with the mandate that some portion of the Corpus to be invested in Annuity to generate monthly pension post retirement. In case of death of subscriber during accumulation phase , the nominee gets the entire corpus.

USP OF NPS: Dual Exclusive Tax Benefit over and above Investment limit of Rs. 1.5 lacs u/s 80C:

SALIENT FEATURES OF NPS:

• Low cost Investment option Online accessibility of account details • Fully Portable Account. Flexible contribution and withdrawal options

Crystal Vision Wealth Managers Pvt. Ltd Do follow us on social mediaBldg No.31, Block no 442, Salokha Niwas, S.No.213/1,Opp. Lokmanya Nagar Post Office,Sadashiv Peth, Pune 411030.(O) +91 9890188086 /020 24339979 / 020 24338086Email: service@crystalvisionwealth.in

NATIONAL PENSION SYSTEM (NPS)

Contribution routed through Employer Contribution routed through Employee directly

To the extent of 10% of Salary (Basic + Dearness Allowance) is exempt from taxable income of the employee u/s 80 CCD (2) of Income Tax Act 1961

Employee can, additionally, contribute up to Rs.50,000 towards NPS which will be exempt from taxable income u/s 80CCD (1B) of Income Tax Act, 1961

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Creatives: Neha Rawal (9881581200)