Daily Voice | India to be one of brighter pockets with likely growth of around 8.5%: Asheesh Chanda of Kristal AI

The latter half of 2021 saw supply chain constraints persist. The third wave of the pandemic also reared its head. As we venture into the new financial year, the Ukraine-Russia conflict is playing the lead role in creating an atmosphere of uncertainties in the market. While the actual war-like situation is expected to ease over the course of the next few months, the repercussions in the form of increased volatility in the global markets is likely to persist longer. Along with the supply chain, there are also issues of fertiliser shortage and food price inflation.

Russia and Ukraine have been major exporters of potash, urea and ammonia based fertilisers. In 2021, global fertiliser prices have been skyrocketing already. This is for Asia a precarious situation, hitting food producers and net importers alike.

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For Asia in particular, I am cautious on countries with large current account deficits, where the future increase in imports will exaggerate the already strained government finances. Funding for USD denominated debt will also increase when, as seen in many other risk-off-scenarios, the USD is likely to rise.

Considering the several headwinds, where do you see the market by the end of FY23? Is there any possibility of 10-15 percent gains?

It is such a volatile and fluid situation, that it is hard to predict outright price targets or market moves. Irrationality often persists for longer than solvency, so it will be difficult to make any particular predictions.

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The US is expected to see a cycle of rate hikes, but their economy remains strong with corporate earnings rather healthy, especially among the larger companies. 2021 saw the US markets rally over 28 percent. While it is hard to imagine a similar performance this year, on the back of a strong economy and almost-full-capacity employment levels, it would not be wildly speculative to expect at least a 10 percent return in 2022 for the US markets.

What are the global themes you want to suggest to investors, which can deliver double-digit returns in FY23?

With the caveat that double-digit returns are never a guarantee, I would expect a basket of commodities to do well during this fiscal year. In an inflationary environment commodities tend to do well. Also, useful would-be some exposure to US financials, as their banking system is expected to become more profitable in a rising rate environment.

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China equities would complete this thematic bucket as that country accelerates its stimulus program. Indian investors can also look at "niche" asset classes like Life Settlement, which have low correlation with equity markets and leading funds in this space have the potential to deliver double-digit returns. Also showing promise are private markets investments, which have the potential to beat the market.

Also what is that one theme in India that should be a part of everyone's portfolio as we entered into FY23?

India has several interesting themes going on. As our country moves up the chain to add more manufacturing power, we should expect factory automation and robotics to play a role. Quite a few Indian subsidiaries of global giants in this field are listed in the local exchanges.

What is the mood at FII desk as FII outflow slowed down in last few days after more than Rs 1.8 lakh crore of selling in second half of FY22?

Given the uncertainty at a global level, the FII desks are resorting to safer options. Hence they are reducing exposure to global markets and consolidating holdings in dependable currency like USD. The sentiment will continue till we see a change in the headline news coming from Ukraine and China.

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If you have Rs 10 lakh and you want to split into asset classes including equity, gold, fixed income etc. How do you go about it, as we just entered into FY23? Also what is your allocation to largecap, midcap and smallcap in the equity space?

While there is no size that fits all portfolios, here is a recommended asset allocation for an investor with a low risk profile.
a) EQUITY - 26 percent
b) FIXED INCOME - 58 percent
c) COMMODITIES - 14.62 percent

This is as per the proprietary investment algo of Kristal.AI.

What is your view on the overall consumer sentiment especially after commodity price rise and price hikes taken by corporates to offset the impact of commodity inflation?

Consumer sentiment is expected to remain robust, in my opinion. Commodity prices going up and reactionary price increases by companies is only one part of the story. The return to normalcy from the lows of the pandemic is a larger positive effect on consumer sentiment than the negative effects from price hikes. As pent-up demand from this section comes to play, overall consumer sentiment would remain strong.

Given the commodities prices are rising, and inflation is a big headwind, what is the impact on overall corporate earnings and also will the impact last for two or more quarters??

A large portion of the commodity price raises till now has been due to the supply chain constraints. The Ukraine situation has only exacerbated this factor. However, as pockets of the global economy return to normalcy from the pandemic years, demand is also expected to come back. Corporate earnings, especially at higher quality end of the spectrum, are expected to remain strong. However, the supply chain constraints are expected to persist for two-three more quarters.

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