FIIs have been selling in India and are moving money to cheaper markets like China, Hong Kong, and South Korea where valuations had turned attractive relative to India.
While the Indian market has remained resilient amid global volatility and the Adani story. Where do you see markets headed? Any near-term headwinds that investors should watch out for?
India has been underperforming so far this year in contrast to its outperformance in 2022. Nifty is down 1.94 percent YTD while other markets – Developed and Emerging – are doing well. The principal reason for the underperformance is the sustained selling by the FIIs from the begining of the year till recently. FIIs have been selling in India and moving money to cheaper markets like China, Hong Kong and South Korea where valuations had turned attractive relative to India. The major near-term risk to equity markets, globally, will come the trend in U S inflation and the Fed’s response to it.
Some of the banks have already started raising rates – do you see the realty, auto, and capital goods sectors taking a hit?
Realty sector might take a hit from rising interest rates. Autos, particularly the premium segment, is coming out of the downturn of the last 5 years and this segment can weather the headwinds from rising interest rates. Capital goods sector also is doing well on the back of strong capex. The massive push to capital expenditure from the Budget also will hold the capital goods sector in good stead.
Do you RBI raising rates further in 2023? Will it impact growth?
In spite of the rising interest rate environment, the domestic economy is doing well, and this trend is likely to continue if the MPC pauses after one more rate hike. Further tightening beyond that will impact growth and the markets will be impacted negatively. In such a scenario, partly moving to fixed income would be a good strategy. IT, too, will be a safe place to hide in a rising rate environment, provided the US slowdown does not deteriorate.
Where is the smart money moving? What is the data telling you?
FIIs have been selling in India and moving money to cheaper markets like China, Hong Kong and South Korea. But this trend has decelerated now.
Priority of the Budget is to ensure that Rs 10 lakh crore earmarked for capital expenditure is actually spent within the fiscal 2023-24 for keeping up the growth momentum – FM said in an event. Which sectors could impact from govt CAPEX?
Two main beneficiaries of government capex will be capital goods and cement. Massive capex of Rs 10 lakh crores has the potential to crowd-in private investment, too, thereby benefitting construction companies.
What is the ideal methodology for picking the bottom up picking? What is the checklist one should follow?
Bottom-up stock picking ignores the macros and industry prospects. This strategy involves identifying the most promising stocks based on fundamentals and the quality of management. Sometimes, the investor will have to wait for long for this strategy to succeed. For instance, ITC did well in 2022 and continues to do well this year too, even when the FMCG industry is facing headwinds. Those who did a bottoms up election of the stock based on fundamentals and quality of management have been richly rewarded.
First published in Economic Times.