Daily Voice | Don’t see an SVB-like collapse in India, be cautious in allocation to IT sector: Weekend Investing founder

Do you think the pharma sector should be part of portfolios now?

I think the answer will depend on your strategy. As momentum practitioners, we need the sector and more importantly the stocks in that sector to show strong momentum before they are picked in our portfolios. As of now the Pharma sector index is sitting at a near 2-year low and at the same level that existed in 2015.

From that point of view the whole sector, barring the spurt seen during Covid for some time, has remained a disappointment. The current trends in the sector are far from showing positive momentum.

Also read: RBI Bulletin | Optimistic about India 'whatever the odds', FY24 GDP growth could be 7% Is this the right time to put money into the equity markets?

There is never a wrong time to deploy money in the markets. We strongly believe that a non-professional investor should not try to time the markets and should stay invested and or continue to gradually deploy his or her capital.

We have done numerous research pieces to showcase that starting at even the top of the cycle does not harm your long-term outcome in any significant way and hence we say that the best day to start investing was yesterday, but if you have missed that, start today.

What is your take on the IT space given the rising risk in the BFSI segment?

There are considerable headwinds in the IT space given the state of the IT space worldwide and more recently the troubles brewing in the banking space as well. The repercussions of the slowdown in Nasdaq companies are yet to come through in the earnings downgrades, and the prospects of Indian companies may be dented.

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The banking consolidation in the US and Europe can also severely impact the prospects of the IT space and one should be cautious in allocation to this sector.

In our momentum portfolios, we have allocations to some mid-tier IT stocks that have continued to retain their momentum and that have been hitting new highs. We remain largely sector agnostic and will stick to these stocks only till they satisfy our portfolio criterion.

Do you think the concerns related to the banking crisis in the US and Europe have eased for now or that there is still a lot of stress in the global banking system?

I believe there can be a contagion effect of what we have seen so far. To have top banks in Switzerland being taken down and multiple smaller banks in the US needing a bailout clearly shows how vulnerable the system is. Any crack in the confidence in any institution unravels things fast.

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All the losses of equity and bond holders can create stress and (lead to) the breakdown of holding institutions. Only after a quarter or two will we know if the storm has passed without a domino effect.

Do you see any possibility of an SVB-like collapse in India?

I think, with my limited knowledge, that Indian banking is in much better shape than it ever was; regulatory controls have been strict and have brought about the required discipline in lending.
PSU banks are also coming out of the cupboard after a decade and are looking good to build up from here. I don’t foresee any SVB-like collapse in India.

Will the Federal Reserve continue on its rate hike path despite the current banking crisis?
The Federal reserve, in my opinion, has been cornered — it is in a catch-22 situation now. Inflation and the job market are still running hot while the current interest rates are beginning to break down things. If the Fed is determined to break down inflation at any cost, then they will need to continue the upcycle and bear the consequence of a recession and some intuitional collapses on the way. This will be a political no-no and hence a more populist view will likely emerge soon.
The interest rate cycle has topped in my opinion and there is no way but to print more (currency) and embrace higher inflation. The only solution out of this mess is a long-term hold on interest rates at current levels, and recapitalisation of balance sheets using revaluation of the gold on Central banks’ books.

Which are the key factors to watch out for in FY24?

Again, a lot will depend on your strategy. Since all our strategies are non-discretionary in nature, we don't worry much about the markets since we know once momentum is back, we will automatically shift to the market leaders and a forced sectoral view will not be required.

Yes, from an asset allocation point of view, as per our general advice, a lot of clients have gained by exposure to gold.

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