"Governments’ conducive policies and measures such as capex spending, reforms related to taxation and labour, and incentives to boost manufacturing and infrastructure remain key drivers for growth that create opportunities for the midcap and smallcaps," Anil Rego, Founder and Fund Manager at Right Horizons says in an interview to Moneycontrol.
As commodities turn favourable and rate cuts are expected midcaps and smallcaps are being favoured by investors amid strong earnings delivery, he believes.
The seasoned investor with over 3 decades of experience says domestic equities are currently being driven by healthy earnings growth, structural drivers of multi-decadal growth, and other factors in the domestic economy.
Q: What do you expect from the Fed Chair speech at the Jackson Hole Symposium scheduled on August 24?
The Federal Reserve has raised interest rates to the range of 5.25-5.50 percent highest level in the last two decades in an aggressive bid to curb inflation. Inflation running rampant above the target range future rate hikes are likely signalled by the officials. Investors are watching out for specifics about any near-term monetary policy decisions and long-term outlook.
Q: Do you think the market will correct more from here on given the interest rate is likely to be higher for a longer period?
Interest rates are expected to persist above RBI’s expectations for FY24 which will likely lead to a delay in rate cuts. This environment of increasing interest rates, costs, and raw materials presents distinctive challenges to each sector. However, we expect this will differentiate companies that are able to manage their cost structure and improve productivity from those that are less efficient.
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While rate cuts are positive for the markets it is just one of the factors that is expected to drive the market. Domestic equities are currently being driven by healthy earnings growth, structural drivers of multi-decadal growth, and other factors in the domestic economy.
Q: What is the one most important factor for the market in the coming 1 year that can impact the sentiment on either side?
A sharper-than-expected slowdown in global growth, persistent inflation, rising interest rates, and geopolitical turmoil are components that are being highlighted by the risk dashboard that may impact the equities market.
Broad-based earnings growth, rate cuts, robust credit growth, recovery in the export market and rural demand are all positive for the markets.
Q4: What is the most important factor in checking the health of the market?
Indicators such as gross domestic product (GDP), the Consumer Price Index (CPI), the Consumer Confidence Index, PMI Manufacturing and services, Industrial Output, and credit growth across industries are of particular relevance to investors in gauging the overall health and trajectory of the economy.
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Health balance sheets of incremental broad-based earnings growth by India Inc. is a good sign of market trajectory in the long term.
Q: Do you see valuation comfort in the pharma space?
Performance in the first quarter of the pharma companies was in-line growth across the topline and better-than-expected bottomline driven by the decrease in price erosion, heightened momentum in higher margin niche products, and successful mitigation of cost pressures.
Companies with exposure to generics in the US that have a good pipeline can not only offset the impact of price erosion but also sustain the growth momentum. Any marked slowdown in the US business or a spike in price erosion are key downside risks. We have a neutral view of the sector but have a positive view of selective segments in the sector.
Q: Considering the ongoing significant rally in broader markets, do you think the valuation remains a concern for the midcap and smallcap?
Governments’ conducive policies and measures such as capex spending, reforms related to taxation and labour, and incentives to boost manufacturing and infrastructure remain key drivers for growth that create opportunities for the Midcap and Smallcaps.
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We see relative undervaluation in small-caps and select demand pockets that continue to be healthy as the multi-decadal growth outlook structure remains intact. As commodities turn favourable and rate cuts are expected midcaps and smallcaps are being favoured by investors amid strong earnings delivery.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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