Abhijit Bhave of Fisdom Private Wealth believes that the US Federal Reserve may raise rates by another 75-100 basis points in July to tame the rising inflation. This may increase the unemployment and harm growth, potentially leading to a stagflation situation, he feels.
The CEO of Fisdom Private Wealth believes that most of bad news has already been discounted by the equity markets and with commodity prices dropping, a pleasant surprise may be in store. “After all, when everyone is on the edge, the story normally ends with buyers showing up after the negative event has passed,” he told Moneycontrol in an interview. Edited excerpts:
Some global investment tycoons still believe that the US will not fall into recession. However, they do expect a slowdown and rate hikes by the Federal Reserve. What are your thoughts on this?
Technically, a recession is defined as a significant drop in overall economic activity accompanied by macro indicators like the GDP being negative for two consecutive quarters, high inflation, and an increase in unemployment. Fears of a recession in US, have increased recently as domestic investment has cooled down and consumers, pummelled by price increases, have reduced spending. The US economy shrank by 1.6 percent in the first quarter and further negative growth is expected in the coming quarter. This do match the definition of a recession in the economy.
In my opinion, the FED may raise interest rates by another 75-100 basis points in July in an effort, to slay the inflation dragon.
This might increase unemployment and harm growth, potentially leading to a stagflation situation.
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I believe that most of the bad news has already been discounted by the equity markets and with commodity prices dropping, a pleasant surprise may be in store. After all, when everyone is on the edge, the story normally ends with buyers showing up after the negative event has passed.
Market is now consolidating after recovering from fresh 52-week lows. Do you expect market to scale fresh highs by the end of this calendar year or you think there will be another round of deep correction?
As economic variables are changing too quickly and as commodities prices and inflation numbers are surprising investors, markets are predicted to remain volatile. Investors would gain more from maintaining stock-specific strategies. Future events will be heavily influenced by the global and domestic policy decisions made by Central banks.
I believe that inflation and commodity prices would be kept in check over the medium term, laying the framework for an upswing in the value of stocks. For Nifty-50 businesses, consensus projections factor in an earnings CAGR of about ~20 percent over the period of FY22-24E.
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By the conclusion of FY23, we anticipate a significant increase in equity market levels. While it is very difficult to project short term market movements, we may also see Nifty levels remaining around 16,200-16,500 levels in this quarter.
After several months of consolidation, the IT sector has seen a healthy correction. Do you expect IT stocks to resume their northward journey after the end of September quarter?
In anticipation of slower growth in developed markets over the next 12 to 18 months, Nifty IT has corrected by 30 percent year-to-date (YTD), a stunning underperformance when compared to the Nifty, which is down by just 8 percent YTD.
For IT services companies, Q1FY2023 is anticipated to be a stable quarter in terms of sequential revenue growth. We think cutting the tech budget would be the last thing on an enterprise's list because technology investments give businesses a competitive edge & also yield margin growths.
We expect growth in valuation of the IT sector keeping in mind the recent correction and the sharp depreciation of INR in recent times.
The participation of domestic investors in the equity market and their awareness has increased in the last couple of years. Considering this, do you think that Indian market shouldn’t bother about the FII inflows?
Compared to developed markets, domestic investors' participation in the equities markets is still quite low. The participation of DIIs is increasing, and current trends among Indian investors, shows a strong trend away from physical assets toward financial assets. Despite the fact, that FPI selling has been non-stop for the past year, it only accounts for about 5 percent of total assets, thus there is little cause for concern.
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At Fisdom, we believe that the next leg of the domestic equities rally will be happen with domestic participation combined with a potential resumption of FPI inflows by the end of the next quarter. We are seeing increasing equity participation across tier 2 & tier 3 cities.
CPI inflation is still above 7 percent, much higher than RBI's targeted 4 percent (+/- 2 percent). Do you think the inflation will cool down by the end of September quarter?
For the first three quarters of the current fiscal year, the RBI expects inflation to continue over the upper tolerance level of 6.0 percent. The bond market won't be surprised if the FY23 ends with a repo rate of roughly 6 percent because the RBI is anticipated to raise rates by another 100-150 basis points to control inflation figures.
Lower inflation rates in the upcoming months may be a result of the recent decline in the price of crude and other commodities as well as a normal monsoon.
What are the risk factors that are yet to be discounted or seen by the market?
An unlikely situation of a deep recession in the US, escalating geopolitical crisis among Russia and Ukraine wherein other European nations may be pulled into a war-like situation and any unexpected sudden spike in the pandemic situation may affect the equity market. But it is important to always remember that the long-term view on the Indian equity market is highly positive.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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