Though the increase in interest rate is going to affect most of the companies, we feel that Banks, Financials, FMCG, Pharma, IT and Telecom are safer bets than others. Companies which are low in leverage will also do well in an interest rising cycle,” says Satish Menon, Executive Director, Geojit Financial Services.
In an interview with ETMarkets, Menon said: “We anticipate a bounce in the market in the short to medium-term due to the market correction. Relief is that the valuation has corrected by about 20% to 5 years averages,” Edited excerpts:
Markets turned volatile in June. What is your take on markets in the near term?
We anticipate a bounce in the market in the short to medium term due to the market correction. Relief is that the valuation has corrected by about 20% to 5 years average.
The major threat is from a sustained hawkish monetary policy from central bankers, cutting further economic recovery and downgrading valuations.
We have seen some carnage in the small & midcaps space. How should one play this space now? Can we say that the broader market is in a value zone?
Mid and smallcaps generally will continue to underperform the broad market in the short-term due to high valuation, downgrade in business outlook, and fall in market liquidity.
However, quality names within the segment should do well, encouraging stock-specific buying. I feel that it is time for specific stock picking in the broader market with a long-term view.
With global agencies downgrading India GDP outlook is there a chance of recession?
Moody’s forecast is higher than RBI’s forecast of 7.2%. The possibility of a recession in the global economy is high due to persistent hyperinflation, war, supply issue, and hawkish monetary policy.
This will influence the Indian economy but will decouple the rest of the world economy.
The domestic stock market will be affected by a drop in FIIs inflows and moderation in domestic inflows due to the reduction in retail inflows.
What is your take on consumption as a theme – do you think it could take a hit amid price rise and possible fall in demand?
Consumption sector has been in the doldrums in the last 6 months due to high inflation downgrading earnings & demand outlook.
We can presume that a fair amount of this is factored in the prices, though volatility is expected in the short to medium-term.
But we expect consumption to perform well, compared to the broad markets, especially staples, FMCG, and Agri-based stocks due to the stable earnings outlook.
Sectors that could relatively be safe bets in rising interest rate scenario as well as rise in inflation?
Though an increase in interest rate is going to affect most the companies, we feel that Banks, Financials, FMCG, Pharma, IT, and Telecom are safer bets than others. Companies that are low in leverage will also do well in an interest-rising cycle.
FIIs turned away from Indian markets but are putting money in IPOs. What are your views on when will the tide reverse? What is pushing FIIs away from India and is it the story for other EMs as well?
II selling has been an EM phenomenon due to the cautious approach of investors from developed countries to cut exposure to the growing economy and shift to safe havens like dollar currency.
FIIs are investing in Indian IPOs after assessing opportunities in new generation businesses which are growing at a high double-digit rate, established on innovative technology & products compared to conventional companies.
What are you factoring in for other forthcoming quarters in terms of earnings? Looks like we could see more earnings downgrade compared to upgrades and the whole theory of earnings revival may take a hit. What are your views?
Yes, we anticipate that the broad market will not be able to meet the estimate of Q1FY23. However, outlook for Q2 can improve if inflation is curtailed, which has already started to moderate.
We have turned more cautious on sectors like metals, energy, and other commodities.
How should one position their portfolio in terms of equity and debt part? Is it time to go slightly underweight on equities or neutral?
Depending on the risk appetite, a portfolio can have a mix of 40% to 60% equity, while debt, gold & cash can have a total mix of 60% to 40%.
This is based on assumption that the global economy may slowdown in 2023 or 2024. During this bear trend, I expect pockets of domestic equity to do well like FMCG, consumption, banks, manufacturing, capital goods, telecom, pharma, IT, and cement, though investors may have to be stock specific with a focus on quality and industry leaders.
First published in Economic Times.