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In the very near term, there are uncertainties around US inflation, interest rates, recession in large economies and commodity prices. Developments around these factors will keep markets volatile. Investing in a staggered manner over next few months is what investors should consider as preferred option, said Rupesh Patel, Senior Fund Manager – Equity Investments, Nippon India Mutual Fund.
In an interview with Livemint Rupesh Patel talked about the outlook of for Indian equities, IT stocks, and why banking sector has been performing well during recent times.
Q Which sectors look attractive?
Between domestic and global facing sectors, at this point we believe, outlook is more favourable for domestic demand focused companies. Accordingly, our portfolio is more tilted towards sectors/companies that will benefit on account of India specific factors. We like companies in consumer discretionary sector where we believe the runway for growth is long. Trends like market share shifts from unorganized to organized, Premiumization etc. will continue to play out over next many years to come. We are positive on financials which includes both Banks and Financial Services companies like Insurance. Within banks our preference is for larger banks that are well capitalized, have strong CASA franchisee and are growing by focusing on relatively less riskier segments of the market. We are also selectively positioned in companies that will benefit with revival in capex cycle in India. Our pharma exposures are more bottom up in nature.
Q What is your outlook for Indian equities after Fed rate hike?
No doubt, in near term aggressive rate hikes by Fed will be negative for all global markets and particularly for emerging markets. India can not be an exception to that. However, we believe from medium to longer term perspective, outlook for India continues to remain positive. Over the years, financial leverage for Corporate India has come down, balance sheets have become healthier and Banks NPA issues are behind us. Government is pushing on encouraging investments on the ground. At the same time, opportunities are getting created as “China plus One” theme plays out. This positions India strongly from cyclical perspective. Longer term structural factors supporting arguments for investing in India, like favorable demographics and growing per capita incomes driving consumption remain very much intact. Hence, markets may remain volatile in near term on account of global factors like Fed rate hike, the medium to longer term view on India remains constructive.
Q Outlook of Rupee? Outlook of IT stocks? Is it a good time to buy it?
In an aggressive rate hike by US fed scenario, USD will show strength against most global currencies. In such a scenario, even Indian Rupee will have weakening bias against USD. We have seen in the past that in times of currency depreciation, export-oriented sectors like IT and Pharma stand out in terms of price performance relative to market. In near term, it is driven by the defensive nature of these sectors and market ascribing benefits of currency depreciation to earnings. However, over longer term, these currency driven gains tend to wither away for competitive sectors like IT. The performance of IT stocks post Covid was driven by significant rerating of these stocks on expectation of uptick in their growth profile as compared to the historical trends. However, there is a risk of overestimation here. So if market expectations of this change in earnings growth trajectory doesn’t play out, IT stocks may disappoint in terms of the stock price performance.
Q Banking sector has been performing well during recent times pulling up banking sector funds. How do you see the banking sector performing going forward and do you think these funds are good investments at this point and why?
Our view on banking sector is positive. Large banks have recognized and provided for NPAs from previous cycle and are well capitalized. With credit growth picking up, banks should be able to deliver growth along with healthy RoAs / RoEs. Further, valuations for most of banks relative to broader market continue to remain reasonable. Considering above positives, one can consider taking exposure to banking funds.
Bouncing back after seven straight sessions of decline, the 30-share BSE benchmark jumped 1,016.96 points or 1.80 per cent to settle at 57,426.92 on Friday. The broader NSE Nifty climbed 276.25 points or 1.64 per cent to end at 17,094.35. Analysts believe equity market will be guided by global trends, macroeconomic data announcement and foreign fund movement in a holiday-shortened week.
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(This story has not been checked by Kashmir Bulletin and is auto-generated from other sources)
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