Sonam Srivastava, Founder at Wright Research feels 2023 looks like an economic thriller.
“We have to brace ourselves for the Fed’s great juggling act — taming inflation, staving off a banking crisis, and dancing through a minefield of challenges with no grand finale in sight!” says the researcher in the field of machine learning in finance & quantitative investing.
With more than nine years of experience in quantitative research and portfolio management, Sonam advised that people need to be buckled up for a bumpy ride, but don’t need to hit the panic button.
Instead, staying vigilant, adapting a healthy asset allocation to deal with the ever-changing landscape, and remembering that history doesn’t always repeat itself might be the key to survival and thriving in 2023, she says.
Do you see any possibility of 2008, like the global financial crisis in 2023 or the collapse of any big bank on the international front?
We’re in uncharted waters with a gloomy global picture, increased recession risk, and weak growth in the US and Europe. While it’s tempting to draw parallels with 2008’s financial crisis, remember that we’re dealing with different beasts: the Ukraine conflict, rising interest rates, and lingering pandemic effects.
Thankfully, the post-2008 financial system is more resilient, with more robust regulations to keep us afloat. So, while headwinds are blowing, don’t expect a major bank collapse or crisis déjà vu. But the US Balance Sheet has become inflated again after the SVB crisis, and the pain of high rates could continue.
We need to be buckled up for a bumpy ride, but we don’t need to hit the panic button. Instead, staying vigilant, adapting a healthy asset allocation to deal with the ever-changing landscape, and remembering that history doesn’t always repeat itself might be the key to survival and thriving in 2023.
Do you expect the Fed to continue with the rate hike path throughout this calendar year despite the recent banking crisis in the US?
The Fed’s rate hike path for 2023 is like walking a tightrope between battling inflation and avoiding a banking crisis. Inflation has eased but is still far from their 2 percent target. At the same time, recent hikes are shaking up the banking industry, hitting smaller players hard.
The big question: will the Fed forge ahead with rate hikes this year? It’s a high-stakes game, and the Fed's likely to play it close to the vest. Expect a delicate balancing act, with the Fed keeping an eagle eye on the banking sector’s pulse while wrestling inflation to the ground.
2023 looks like an economic thriller, and we have to brace ourselves for the Fed’s great juggling act — taming inflation, staving off a banking crisis, and dancing through a minefield of challenges with no grand finale in sight!
What challenges do you expect in the next financial year that can dampen equity market sentiments?
Global inflation and the US FED reaction to it remain critical issues. With central banks, including the Fed, adjusting interest rates to manage inflation and support economic growth, markets may experience fluctuations and uncertainties.
Secondly, geopolitical tensions and trade disputes continue to loom, injecting apprehension into the markets. As a result, investors may become cautious due to the unpredictable consequences on global business and economic stability.
Lastly, there are signs of growth slowing down, and the consumer section is also seeing a slowdown in spending. In addition, rural demand has been struggling, and corporate earnings growth might get impacted.
Being aware of the uncertainty with healthy asset allocation and a vision of the long-term growth story that India presents is the key to surviving these troubled times.
What is your take on the TCS especially after the resignation of Rajesh Gopinathan as MD & CEO?
The sudden resignation of Rajesh Gopinathan as MD & CEO of Tata Consultancy Services (TCS) might initially trigger an adverse market reaction. However, it is essential to consider the robust foundation and management capabilities TCS possesses.
TCS has a history of seamless leadership transitions and maintaining consistent growth trajectories, as evident from the handover of reins from Chandra to Gopinathan. In addition, the company’s strong bench strength and resilient organisational structure should mitigate any significant downside to the stock.
Furthermore, TCS enjoys a solid reputation as a market leader and innovator in IT services. Its diversified client base and global presence help insulate the company from isolated events, such as management changes.
Are you still betting on a 25 bps hike in repo rate by RBI, and will that be the last rate hike before taking a big pause?
Considering the current inflationary pressures and the global economic scenario, I see the possibility of the Reserve Bank of India (RBI) implementing 25 basis points (bps) hike in the repo rate. However, predicting whether this would be the last rate hike before a significant pause is more challenging.
The RBI has to balance its monetary policy carefully, ensuring that inflation remains controlled while not stifling the economic growth momentum. In addition, external factors, such as global economic conditions, geopolitical tensions, and commodity prices, may influence the central bank's decisions.
Moreover, the trajectory of the pandemic and its potential implications on domestic and international economic recovery could play a crucial role in the RBI's decision-making process.
Ultimately, the RBI’s future course of action will be dictated by the evolving macroeconomic conditions and the effectiveness of its measures in addressing inflation and supporting growth. Therefore, it’s crucial to remain agile and adapt to the dynamic economic landscape, keeping an eye on the RBI’s policy moves and potential market impact.
Inflation is a much bigger concern than financial stability. Your thoughts?
Inflation and financial stability are critical economic concerns, and their relative importance often depends on the prevailing economic context. Inflation can be a potent force, eroding purchasing power and putting pressure on households and businesses. When left unchecked, it can lead to reduced consumer spending, slower growth, and increased income inequality.
However, financial stability is equally vital, as it underpins the strength of the financial system and the economy's ability to absorb shocks. A stable financial landscape is crucial for fostering economic growth, generating employment, and ensuring the efficient allocation of resources.
Inflation might take centre stage as the primary concern, particularly when it reaches persistently high levels or threatens the credibility of the central bank's inflation targets. But it's important not to discount the role of financial stability in fostering a resilient and prosperous economy.
Ultimately, striking the right balance between addressing inflation and maintaining financial stability is a complex task for policymakers. They must carefully navigate the economic landscape, ensuring their actions don't inadvertently tip the scales in the wrong direction.
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