"We believe that the rate hiking cycle to be over, hence the interest rates incrementally are not expected to go up much even though it acts with a time lag," Ajit Banerjee, Chief Investment Officer at Shriram Life Insurance Company, says in an interview to Moneycontrol.
He feels the financial services sector is expected to deliver stronger numbers this year. Therefore, "on a broader level we can perhaps expect double digit return this calendar year barring a few sectors, which would be facing global headwinds," he says.
With more than 29 years of experience across diversified sectors in the fields of investments, financial control, and management accounting, Ajit is bullish on the PSUs which focuses on infrastructure sectors, energy, defence, railways, and constructions sectors to name a few.
Do you think the risk of a global recession has been increasing?
The global economy today poses a mixed outlook. The overarching economic backdrop is one of persistently uneven global growth. In its latest World Economic Outlook, the International Monetary Fund (IMF) forecasts global growth of 2.8 percent this year and annual average growth of around 3 percent over the next five years. Moreover, this forecast rests on an uptick in economic activity in China and a number of emerging markets.
The IMF foresees a sluggish growth performance by the world’s advanced economies over the medium term. As per a recent survey, the Chief economists of the World Economic Forum see the most buoyant economic activity in Asian economies. 93 percent of chief economists expect at least moderate growth in East Asia and Pacific, with 39 percent expecting strong or very strong growth. The outlook for South Asia is broadly similar with 92 percent expecting at least moderate growth, and 36 percent expecting strong or very strong growth.
At the other end of the gamut is Europe, where 75 percent of economists expect growth this year to be feeble or very feeble. Latin America and the Caribbean, and Sub-Saharan Africa also remain at the weaker end of the outlook. The economists are now evenly split on the outlook for the United States, with half of respondents expecting moderate or strong growth and the other half expecting weak or very weak growth.
India’s growth continues to be resilient despite some signs of moderation in growth. The World Bank in its latest India Development Update notes that although significant challenges remain in the global environment, India was one of the fastest growing economies in the world. Growth was underpinned by strong investment activity bolstered by the government’s capex push and buoyant private consumption, particularly among higher income earners.
Hence, to conclude, the mixed outlook on the global economic environment will continue in the near future till such time the developed economies recover.
Do you see RBI lowering its inflation forecast in the next policy meetings?
RBI has very clearly mentioned that its next course of action on rate actions or GDP and Inflation forecast will be highly data dependant and would depend on how situations unfold globally and in domestic scenario. The major portion of the latest decline is coming from a high base effect (inflation was at 7.8 percent in April 2022).
However, inflation moderated on a sequential basis as well provide some confidence that the disinflationary trend might be underway. On a sequential basis, adjusting the data for seasonality, headline inflation was down by 0.37 percent MoM led by a sequential decline in both food inflation and core inflation. If indeed the current sequential moderation in inflation continues, weather conditions remain merciful, and the crude prices continue to remain benign then the RBI may perhaps lower its inflation forecast in the next policy meetings.
Do you expect RBI to cut the repo rate earlier than expected if El-Nino, monsoon fears don’t play out?
We believe that in the immediate future, any resurgence of inflationary risks due to weather disturbances viz. impact of El Nino in the latter half of the monsoon season remains a possibility and therefore a risk.
But, for now this inflation print should show the RBI to keep rates on hold at its June meeting as well. We don’t expect any rate cuts to be announced in the calendar year 2023 as it’s too premature to do so at this stage.
Are you more positive on the consumer theme?
As the Indian economy continues to recover from the impacts of the pandemic, consumer spending is anticipated to increase, providing an additional boost to companies in the consumer segment. The consumption-driven sector could benefit from inventory re-stocking and demand improvement if inflation falls in the second half. Also, we shall have General Elections in CY2024. Such elections are always preceded by large Government spends creating rural employment and leading to consumption. Therefore, on an overall basis I am positive on the consumer theme at this point of time.
What is your take on capital goods space considering the flow of the order book?
The central government's focus on investment-led growth in the country augurs well for sectors such as capital goods and infrastructure.
In order to take advantage of the Governments push in developing the country into “ Atma Nirbhar Bharat “ and to avail of the production linked incentive schemes announced by the Government , we expect private and public sector capex investments to continue to meet the additional production capacity required to service the order book strength of the capital goods companies.
Are you bullish on the PSU space?
There are certain PSU companies which are strategically very important to the government. A significant amount of economic activities and policy initiatives are implemented through these PSU companies. Hence the PSU companies, whose product and services aligns with the government’s priorities, gain lot of importance. Presently, we are bullish on the PSUs which focuses on infrastructure sectors, energy, defence, railways, and constructions sectors to name a few.
Will the equity market find it difficult to end the current calendar year with a double-digit return?
On a broader level domestic focussed companies would fare better than external focussed companies in view of their comparative less volatility. As globally and domestically commodity prices have cooled down and are expected to remain benign, corporate earnings are likely to improve further going forward.
As we believe that the rate hiking cycle to be over, hence the interest rates incrementally are not expected to go up much even though it acts with a time lag. Financial services sector is expected to deliver stronger numbers this year. Therefore, on a broader level, we can perhaps expect double digit return this calendar year barring a few sectors, which would be facing global headwinds.
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