Trust Mutual Fund CIO Mihir Vora expects the US Federal Reserve to begin cutting rates in the second half of this year, saying high yields have begun to impact growth and putting some stress on the American financial system.
In an interview to Moneycontrol, Vora, who has more than 30 years of experience in investment segment, says the market has already factored in the outcome of the general elections. So, "I do not see any major movements before or after the elections”. Edited excerpts:
Do you think the RBI's cut cycle will start from the second half of the current calendar year?
The Monetary Policy Committee (MPC) convened against a domestic backdrop of softening headline inflation, stable core inflation, and a budget that is both fiscally prudent and non-inflationary.
On the global front, recent data points to continued robustness of growth against general expectations of a slowdown. The US Fed removed the tightening bias from its statement leading to a question of when the rate cut cycle begin. Geopolitical unrest in the middle east and Red Sea region continue to possess key risks to fledgling global recovery.
Indian MPC thus maintained a status quo on rates as well as its stance ('withdrawal of accommodation') as it believes the transmission of past rate hikes remains incomplete and the 4 percent CPI target may still be a bit distant. The MPC has projected FY25 GDP at 7 percent (FY24 7.3 percent) and CPI at 4.5 percent (FY24 5.4 percent) reflecting a strong economic growth with easing inflation trajectory. The risks to these come from volatile food prices and potential supply side shocks from global factors.
Overall, the RBI remains a bit conservative while trying to balance the growth-inflation balances. We believe that the tightness in liquidity has already started impacting credit growth and margins of lenders and the second half of 2024 will see the RBI begin to cut rates so that growth is not impacted negatively.
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What is your take on the growth forecast? The RBI expects economic growth at 7 percent for FY25.
We expect GDP growth of 6.5-7 percent. The domestic economy recovery is still uneven and the global situation is also uncertain, hence the range. Government capex growth for FY24 is good but lower than what we saw in the last couple of years. So the pickup in consumption and private capex need to be higher than last year.
Do you see the Fed cutting interest rates in second half of this year?
Yes, I believe that the Fed will start cutting rates in the second half, as the current high yields have already begun to impact growth and also putting some stress on the financial system in the US like commercial property, existing home sales and some mid-sized regional banks.
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Do you see a pre-election rally? What are your favourite sectors for FY25?
The market is already discounting the elections and the verdict seems to be that there will be a continuity of regime. So, I do not see any major movements before or after the elections since the consensus is quite strong.
I expect continuity of policy and hence I would continue with the current stance of being overweight on the domestic economy.
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India is expected to be the fastest-growing large economy in the world for the next few years and flows to the stock market are expected to continue. GDP will grow at 6-7 percent with consumption and investments both contributing.
The government initiatives on reforms, domestic procurement and local manufacturing/ import substitution are changing the mindset of the Indian business community. These will only accelerate in 2024 as people have seen initial successes of the production-linked schemes and initiatives in defence, railways, power, renewables, infrastructure etc.
The themes we believe in for the next few years are manufacturing, renewables, digitisation, infrastructure, urbanisation, premium consumption, financialisation of savings and the rise of equity savings cult.
Do you see the rally in PSU stocks taking a breather after the full budget, which the new government is expected to present in July?
There is a wide range of PSU stocks and they cover the gamut of ‘value’ to ‘high-growth’ sectors. So, it is difficult to make a generalised statement for the entire PSU space. Having said that, there are certain pockets where I do see a speculative frenzy building up and valuations do not make sense in these.
Most of these are midcaps or smallcaps with limited free float as the Government has divested only a small percentage of it shareholding in many names. I would be cautious in these stocks.
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