Daily Voice: Don't expect a big surprise in general election results, be a buyer on dip, says this portfolio manager

Ashwini Shami is the executive vice president and portfolio manager and co-founder, OmniScience Capital

Ashwini Shami, Executive Vice President and Portfolio Manager and Co-Founder, OmniScience Capital feels that the results of the general election are a low probability but high-impact risk factor for the markets.

While the market is currently pricing a stable government at the Centre, investors should be prepared to go through occasional episodes of high volatility until the first week of June, he said.

At OmniScience, they do not expect a big surprise in the election results and see these volatility events as good buying opportunities for long-term investors who are allocating capital with a positive outlook on the Indian economy, said Shami who has spent more than 20 years in the financial services industry.

More than the equity market’s uncertainty, the VIX index measures Mr. Market’s mood swings which don’t concern us much. We believe the overall investor sentiment is still positive. Scientific investors understand that equities need a probabilistic approach, and they cannot have 100 percent certainty about everything before they can allocate capital.

We see general elections as a low probability but high-impact event on the negative side in the short run. However, for investors optimistic about India’s growth potential in the long run, these higher volatility events are an opportunity to allocate long-term capital.

Currently, the general election result is a low probability but high-impact risk factor for the markets. While the market is currently pricing a stable government at the Centre, investors should be prepared to go through occasional episodes of high volatility until the first week of June.

We do not expect a big surprise in the election results and see these volatility events a good buying opportunities for long-term investors who are allocating capital with a positive outlook on the Indian economy.

The world listens up when one of the most successful investors speaks about the Indian investment opportunity! Interestingly, this is very much in line with our long-standing view that globally, India and the US are the most attractive equity markets for investors for long-term sustainable investment opportunities.

Buffett surely is one of the many large global investors who are expected to allocate significant capital in Indian equities as it emerges as one of the fastest growing emerging markets with stable economic conditions and a predictable policy environment.

The financial services space is one of the most attractive segments of the market currently based on both the long term growth potential and the current valuations. Specifically, the large public and private sector banks and selected infrastructure NBFCs are available at a significant discount to their intrinsic values.

This is a twin-balance sheet opportunity where, on one side,  financial services companies are at one of the strongest fundamental levels and have a large capacity to lend, and on the other side, the corporates are significantly deleveraging and operating at higher asset utilisation levels and have started borrowing fresh capex. This is further boosted by the government push on infrastructure spending.

We are positive on both large private banks and public sector banks. We expect the banking sector to grow at double digits with improvement in margins as the banks operate at higher asset to equity ratios and as operational leverage expands.

Further, the asset quality is at a decadal high and the banks have broadly embraced the digital transformation well in the face of competition from fintech companies.

The economic projections of the Federal Reserve board estimate the real GDP growth rate for the year 2024 in the range 1.3 percent-2.7 percent with the median growth rate at 2.1 percent as per the March 20 release. This was a significant upward revision from the 1.4 percent 2024 growth projection released in December 2023. This basically indicates that the chances of a US recession in the current year are extremely low.

The delay in rate cuts is due to a slightly higher PCE reading of 2.7 percent versus an expected 2.6 percent gain. The core PCE reading in March was unchanged at 2.8 percent which was expected to be lower at 2.7 percent. This could potentially be just a pause in the otherwise steadily reducing inflation rate. The Fed has also maintained its expectation of three rate cuts in this calendar year.