Franklin Templeton Investments, one of the largest foreign mutual fund houses in India, sees rhetoric on competitive populism by political parties in the run-up to the General Elections and global slowdown as major threats to the equity market this year.

Anand Radhakrishnan, Managing Director, Franklin Templeton (India), said some of the promises made by political parties such as loan waivers, subsidies, reduction in GST rates, and unemployment allowance are alarming, and if implemented, could boost consumption but at the cost of lower infrastructure and capex funding.

Inflation too might rear its head after being benign for long, he added.

Another risk is the possibility that persistent weakness in global markets in general and continued uncertainty in Indian markets could affect domestic flows, going forward, making Indian equities once again vulnerable to foreign portfolio investor (FPI) capital flows, he said at a press meet here on Tuesday. At present, most of the other emerging markets are looking more attractive and FPIs are waiting for the uncertainty over the election outcome to clear before re-investing in India, said Radhakrishnan.

Pressure on prices

As global growth moderates this year, there may be pressure on commodity prices and hence, inflation in general is expected to stay stable, paving the way for benign monetary conditions, he added.

On the possibility of a series of defaults by IL&FS, Zee Entertainment and DHFL in the last few months impacting mutual fund investors’ sentiment, he said, it will not be a major issue for investors as long as it does not impact their returns. However, he said such unpredictable credit risk events are major impediments for fund managers and investors alike. Though, regulators have the best of corporate governance regulations, its adoption by corporates has so far not been put to test.

In fact, Franklin has ensured participation in all corporate decisions put on vote for investors and mostly voted against the management decisions, he added.

The domestic banking sector is expected to drive better credit growth as it recovers from significant provisioning cycle, leading to improving demand condition.

Higher capacity utilisation should revive corporate capex leading to investment cycle and earnings growth. Overall, this year is expected to be better than last year for equities, he said.