The market has gone through some consolidation through the last four months, especially after hitting record highs in October.
Harshad Chetanwala, Co-founder of MyWealthGrowth, shares with Moneycontrol that the market may continue to consolidate a bit further for the next couple of months, as they see interest rates rising across the world and India.
Conventional wisdom indicate that equities can potentially underperform when interest rates goes up. So, a gradual approach towards making new investments could be better in near term, he says. Excerpts from the interaction:
Do you think the oil prices will remain around $90 a barrel for long?
Commodities have different factors that impact its prices. No one expected crude prices will increase rapidly to the current levels a year before. Considering the present factors, the demand for crude is surging in a post-COVID global economic recovery situation and supply-related issues continue to be around for some time.
At the same time, geopolitical tension is also adding to the concerns. The crude prices may remain stressed if the Ukraine-Russia dispute escalates further and, at the same time, if the issue eases then it may take away a lot of pressure on crude price.
What is your take on the RBI monetary policy?
The RBI did surprise the market by keeping the rates unchanged and staying focused on the revival of growth. Maintaining the accommodative stance indicates the RBI's willingness to continue to tolerate the low-interest rate and focus on recovery. But we expect interest rates, globally and in India, to increase this year.
Also read - What is behind the RBI’s sense of comfort on inflation?
The market is 5 percent off from its highs now. Is it time to turn cautious considering the several events ahead?
The market has gone through some consolidation and may continue to consolidate a bit further for the next couple of months, as we see interest rates rising across the world and India.
Conventional wisdom indicate that equities can potentially underperform when interest rates goes up. So, a gradual approach towards making new investments could be better in near term. At the same time, one can continue to remain invested as the market should do well once it adjusts the impact of the interest rate hike and other short-term events.
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What are your thoughts on the December quarter earnings announced so far?
The previous quarter earnings so far have been healthy where the topline growth has been good. At the same time, there have been a few disappointments on the operating margin side. The input costs have been high during the quarter which has impacted the earnings and it may continue to build pressure on the operating margin for some more time. We believe the earnings will continue to be upgraded for the coming quarters as margin pressure eases.
Consumption, cement, auto, as expected, saw margin pressure in Q3FY22 due to weakness in rural demand and persistent input cost pressures. Do you expect these sectors to continue to see margin pressure in the March 2022 quarter numbers as well?
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Margin pressure on some of these sectors may continue for some more time as the input costs are high. Having said that, we believe the recovery at a reasonable pace is constantly happening on the demand side. This can lead to a good earnings cycle in the coming quarters considering the different factors are falling in the right place.
What are the sectors, according to you, to select after the December quarter earnings?
We continue to believe sectors like IT, banking, auto and real etate should do well. Auto and real estate sectors will get benefited from the return of normalcy, increase in employment and positive sentiments of consumers.
In the banking sector, large banks in particular are well placed at present and continue to see decent growth in retail assets. IT is expected to do well as the world is progressing well towards normalcy every day which can help in the global demand for this sector.
When do you see the market returning to record highs and what could be the driving factors?
The market is getting well placed for long-term growth and is expected to do well after a possible near-term consolidation mostly due to interest rate hike and geopolitical issues. However, this phase may remain for a couple of months and from there onwards we believe the market should continue to do well.
The overall recovery is happening at a much better pace, limited impact of the Omicron variant on India, healthy balance sheets of corporates and improvement in employment are the factors that can drive the markets ahead over the long term.
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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