In an interview with ETMarkets, Nair, said: “Volatility is expected in the next 2-3 months, but the INR should strengthen, and foreign investors’ selling should reduce” Edited excerpts:
You might want to call this a Fed effect. Indian market fell by about 2% in the week gone by. What led to the price action?
Yes, the US Fed’s decision influenced equity markets as it continues to hold a hawkish stance in the future to combat hyperinflation.
Given the recessionary concerns, the market may not have expected such an aggressive policy. A rapid increase in future interest rates combined with a slowing economy is unfortunate for the global market.
In this scenario, the Reserve Bank of India (RBI) also raised the repo rate, and we may anticipate that the policy will remain in the future, albeit less hawkish.
Another factor is that the US dollar is the safest asset, forcing the INR to depreciate to an all-time low of 82 and impacting the domestic stock market.
However, an in-line rate hike along with the RBI’s confidence in the domestic economy’s growth helped to alter the losing streak.
Post the September series expiry – where do you see markets moving in the October series?
We can presume that a large part of the monetary decisions is based on the market. However, volatility is anticipated, but the stock market is trading in oversold territory, which can trigger a short-term bounce in the stock market.
This month, the market will also be hinged on the forecast of Q2FY23 results and festival season demand, which appear to be progressive.
Rupee took a hit in the week gone by. Where do you see the currency headed in the coming week?
Post the in-line decision of the RBI to hike rates by 50bps means that the spread between the 10-yr yields of India and the US, which is trading at a multi-year low, can improve slowly from hereon.
Volatility is expected in the next 2-3 months, but the INR should strengthen, and foreign investors’ selling should reduce.
This will help INR perform well, which is trading in an overbought position on a daily chart analysis basis. The recent fall in bond yields in the UK is a positive sign for EM currencies.
We should also note that the INR is the best EM currency performer, maintaining the long-term bullish view.
What is the texture of the market – buy on dips or sell on rally kind of market?
I would say that both the strategies are available in the market on a short-to-medium-term basis. There are pockets that are overvalued and undervalued as the stock market is undergoing a period of uncertainty.
This patch of volatility will prevail as the world overcomes geo-political issues, hyperinflation, and a recessionary downswing.
In the short-term, we can turn positive as the recent correction has factored in the near effect of hawkish monetary policy and the mixed results of Q2FY23E.
Also, the demand environment is robust in the festival season and valuations have contracted, opening up buying opportunities. Still, we will have to be careful that we stick with quality stocks and sectors and avoid highly volatile ones.
FIIs have also turned net sellers in the cash segment of Indian equity markets. Will the trend continue in October?
Well, it’s a very difficult state on a short-term basis, but we are sure to state that the level of selling can reduce in the coming months.
The current uncertainties are about geopolitical position and volatile currency markets, which will continue to affect FII flows as the stock market’s appetite for risk has been hindered.
But India is the best pick for FIIs with strong long-term inflows as the domestic economy is buoyed by solid fundamentals.
Stability in the US stock market, which is currently trading with a bearish trend, will increase the inflows to India.
Utilities, power, and metal fell the most (down over 5% in a week). What led to the price action?
Growing concerns over the global growth slowdown and an uncertain demand outlook from China have led to a downtrend in international metal prices.
Further, the aggressive rate hike cycle by various central banks to tame inflation and the imposition of a 15 per cent export duty by India is expected to slow demand for metals, impacting the performance of the sector.
With the country’s monsoon receding, power demand has begun to pick up in recent weeks, and the availability of local coal stocks for generation looks stable, which is positive for the sector.
However, the sector’s stocks fell as a result of unpredictable global market conditions characterised by high costs and low availability of international coal & gas.
This is expected to increase the cost of generation and the lower availability of plant capacities.
A lot of stocks are trading at a 20-50% discount to their 52-week highs after the recent fall. What is the checklist one should follow while buying the dip?
Yes, there are many stocks available at a high discount to their historical trend. For example, about 300 stocks from the Nifty500 index, which is 60% of the total 500 stocks, are trading at 20% to 80% lower from the 52-week high.
They do provide an opportunity to hold, buy, and accumulate on a short-to long-term basis. However, the global uncertainties continue, and the stock market is expected to trade with a pinch of salt in 2022–23.
So, we should continue to be careful and stick with quality. We should focus on stocks and sectors that are developing their business models in-line with the domestic economy’s progress.
Like the rise in Consumption, Green initiatives (like Solar, Wind, Hydro Power, Hydrogen, Battery), Specialty Chemical, Banks, and Manufacturing, look interesting.
Green energy is a long-term story, but the current availability of stocks is limited due to a small basket and trading at supreme high valuations.
More opportunities can develop in the future. So currently, we will have to stick with large and intrinsically valued corporates.
Generally, value buying should be the theme of this investment cycle with a focus on low leverage. Two sectors to fit into the value scenario are IT & Pharma.
First published in Economic Times