In the short term, Raghvendra Nath, MD of Ladderup Wealth Management, prefers the passenger vehicle and 2-wheeler segments in the auto space, given the increase in per capita income, urbanisation, better financing availability and trend towards premiumisation.
But, according to Nath, commercial vehicle volumes are expected to see a slowdown during the ongoing elections due to a perceived pause in infrastructural activities.
Meanwhile, the monsoon season and the absence of price hikes will lead to poor demand in the cement market over the next few months, which may keep cement stocks volatile in the short term, says Nath, who has more than 29 years of corporate experience.
Edited excerpts from an interaction with Moneycontrol follow:
What do you make of the recent speech by Fed Chair Jerome Powell? Is he indicating that there may be an interest rate cut in November and not in September?
At the (Foreign Bankers' Association) meeting held in Amsterdam, Mr Powell spoke about inflation concerns and how the problem has been a demand side problem as against the supply side issue in the Eurozone. He spoke about the high economic growth that the US economy has seen over the past quarters. What we make out of the interview was that the Fed is expected to maintain its stance in the coming months and there is a higher chance of the Fed maintaining rates than increasing them.
Mr Powell commented about the policy being restrictive enough for the time being for them (the Fed) to manage inflation, though it was unclear about when to expect any rate cuts from the Fed.
Is Powell looking worried about inflation and the US unemployment rate?
The latest CPI was reported at 3.4 percent, in line with expectations, and moderating slightly from the reading in March. Inflation continues to be a concern for Mr Powell as inflation in the US has been stickier and has been falling much slower than was initially expected.
Mr Powell, in the (Amsterdam) conference, stated that the labour markets remain strong and provided no signal that April's softer but still solid job gains raised any concerns for the Fed. As stated by him earlier, either a larger inflation drop-off or an “unexpected” weakening in the labour market could push the Fed to trim rates sooner.
Do you see any possibility of the RBI cutting interest rates before the Federal Reserve starts this year?
Central banks globally have largely followed the Fed when it comes to rate cuts, and we expect the RBI to do the same. In India, inflation stability is something that the RBI has spoken about, and we are yet to see the same in the inflation numbers. Inflation in the coming months would help the RBI decide further on where it stands but we believe it will continue to hold its stance in the coming meeting.
Is this the right time to have exposure to the commodities and cement sectors?
Each commodity has its own cycle, and it is recommended to invest when the cycles have bottomed out. We personally do not have any exposure towards commodities. The post-covid era saw a surge in commodity prices due to various issues such as the supply-chain crisis and geo-political issues. However, things have stabilised now with most commodities approaching their steady levels.
Oil has, however, been volatile due to the continuous crisis in the oil producing nations in the Middle East. We expect oil prices to remain volatile given the unpredictability on the geopolitical front.
The monsoon season and no price hikes will lead to poor demand over the next few months, which may keep cement stocks volatile in the short term. While a seasonal dip in demand is expected in the near-term, several factors suggest a potential rebound later in the year. The government's infrastructure push, along with its focus on affordable housing, may drive up in the medium-to-long term though.
An interesting thing to note is that the majority of mutual funds have reduced their exposure to cement stocks over the last six months, which can be indicative of short-term pressures on the cement stocks.
Why do you prefer the passenger vehicle and 2-wheeler segments over commercial vehicles in the auto space?
In the short term, we prefer the passenger vehicle and 2-wheeler segments given the increase in per capita income, urbanisation, better financing availability, etc and the premiumisation trend that is clearly visible in the auto industry, as can be seen from the increase in the demand for SUVs. Credit rating agencies also expect high-single-digit demand in passenger vehicles and the two-wheeler segment in the short term.
Commercial vehicle volumes are expected to see a slowdown during the ongoing elections due to which there is a perceived pause in infrastructural activities. However, over the long term, commercial vehicles continue to remain attractive given the continued focus on infrastructural capex, and emphasis on private participation in infrastructure, construction, defence and manufacturing activities.
Where do you want your money to flow (in terms of sectors), after reading the March quarter earnings?
The updates for Q4 FY24 indicate mixed performances, with some sectors like banking, non-banking financial companies (NBFCs), and real estate providing optimistic business updates. That being said, the banking space looks attractive at this juncture having reported good numbers. But the high interest rates are expected to hit the NIMs of banks, so we will have to see how they perform in the coming quarters.
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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