According to Pramod Gubbi of Marcellus Investment Managers, if US bond yields remain elevated in anticipation of inflationary pressures, there is little chance of foreign flows reversing opening further downside risks to the equity market.
Further, given valuations are still high and earnings don’t seem likely to bounce back anytime soon, risks continue to be to the downside for market, he said in an interview to Moneycontrol.
He is bullish on the pharma space. "Relative to the rest of the market, there is better earnings visibility in pharma. Especially companies exposed to domestic pharmaceuticals are likely to see earnings momentum sustain," said Gubbi.
Is it better to focus on the bond market to gauge the signals for a further US rate cut cycle?
Yes, but bond markets are in turn building in expectations of inflationary policy measures under the Trump administration which may or may not transpire. It is worth watching out for such policy actions as well.
Do you see a 50:50 chance for an interest rate cut in the RBI's December policy meeting?
Unlikely, given inflation is way above the RBI’s target and it is unlikely we will see a sharp decline in inflation by December. Furthermore, given the build-up of inflationary expectations in the US and the lower probability of rate cuts and the resultant effect on fund flows and the INR, it is very unlikely we’ll see a rate cut in December.
Do you think the worst is over for the equity markets now?
It is futile to predict equity markets in the short run. But given valuations are still high and earnings don’t seem likely to bounce back anytime soon, risks continue to be to the downside. Further, if US bond yields remain elevated in anticipation of inflationary pressures, there is little chance of foreign flows reversing opening further downside risks to the market.
Do you believe there is enough domestic money to support a sell-off driven by FIIs?
Despite domestic buying, markets have given up 10 percent so far. Not sure if it is enough to offset the selling. But one could argue the downside could have been sharper had the domestic buying not been there. The resilience of the domestic investor as seen in the record inflows into MFs through the October weakness is encouraging and can limit downside if it sustains.
Do you see a positive trend in export-oriented sectors (like chemicals and tiles) given Donald Trump becoming US President?
Yes, some sectors exposed to US markets could benefit should the differential tariffs on China and India play out as envisaged. However, I don’t think all export-oriented sectors will benefit. Furthermore, Chinese exports to other markets especially emerging markets could rise, creating competitive pressures elsewhere. One should take a bottom up approach on a case to case basis.
Are you bullish on pharma sector? Will the earnings momentum maintain for the next 2-3 years?
Yes, relative to the rest of the market, there is better earnings visibility in pharma. Especially companies exposed to domestic pharmaceuticals are likely to see earnings momentum sustain.
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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