Vivek Goel, Co-Founder and Joint Managing Director at Tailwind Financial Services, anticipates a temporary pause in the markets following a robust rally over the past three months. He attributes this expectation to the combined factors of an impressive rally, concerns about rising food inflation, and the potential for a hawkish US Federal Reserve meeting in July.
Goel believes valuations in banking and financials continue to look reasonable compared to historical averages and pre-covid levels. "We expect the quarterly results to be positive on the back of strong loan growth along with reducing credit costs. These can be good triggers for banks to continue performing well," says Vivek with having good experience in ultra-HNI portfolios management.
Considering the rising food inflation, he feels there is a risk of CPI rising above 6 percent. However, he expects that even if it happens, the same will be temporary and average inflation for FY24 should be below 6 percent.
Q: Is the equity market looking overvalued? Do you expect time corrections in the market and will it be a 5-10 percent correction from here on?
Equity valuations have risen beyond historical averages as investors have continued to remain bullish on the India growth story. There has also been a shift in focus from leaders to challengers as we see mid and small cap outperform the large cap.
We do expect markets to take a breather in the near term on the back of a strong rally as well as concerns from food inflation shooting up and a possible hawkish US Fed meeting in July.
Q: Do you want to increase exposure to capital goods space?
We would want to wait and hold at this point as valuations have become stretched in most pockets and there is possibility of some time correction as we enter the earnings season and market would be observing management commentary before taking new positions.
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As of now, we remain cautious in calling the current capex cycle a broader sustained one and would wait to track further developments.
Q: Your one favourite sector that can't be kept out of your portfolio?
We are looking at diversifying allocation across a combination of sectors, and within that banking and financials continues to be one of the places where valuations are still looking reasonable compared to historical averages and pre covid levels.
We expect the quarterly results to be positive on the back of strong loan growth along with reducing credit costs. These can be good triggers for banks to continue performing well. We are also looking at building back some allocations in Healthcare and IT services where valuations have been coming off since their peak last year.
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Q: Do you expect more than 15 percent earnings growth in FY24? If yes, then which are the sectors at the driver's seat?
Our estimates of earnings growth for FY24 are near 15 percent for Nifty 50. There are multiple factors driving growth including telecom on the back of ARPU (average revenue per user) increase, Automobiles helped by correction in commodity prices and rise in average selling price, Banking on the back of higher credit growth and falling credit costs and Capital goods sector as the capex cycle has been improving.
Q: Will CPI inflation remain below 6 percent in the rest of the financial year?
While upside risks from supply side concerns have reduced benefiting core inflation forecasts, food inflation may be a dampener. With a late onset in monsoon and recent floods, initial impact has been seen in tomato prices and if weather continues to be erratic, it may broaden across the food basket.
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Accordingly, there is a risk of CPI rising above 6 percent, however we expect that even if it happens, the same will be temporary and average inflation for FY24 should be below 6 percent.
Q: Do you expect two more rate hikes from the Federal Reserve and then a pause till the end of FY24? Your take on the possibility of recession?
The Fed chair has been maintaining that despite the pause in the previous meeting, more rate hikes will be needed in the fight against inflation. We are tracking the implied fed fund futures, which also indicate markets having priced in 2 hikes of quarter percent.
We further expect the Fed to take a longer pause in H1CY24. In terms of the impact of the higher rates, it will impact the economy leading to a slowdown, however, we are penciling in a soft landing as our base case, with most indicators signalling resilience of the economy.
We also expect the Fed to keep an eye on growth in calibrating their policy actions accordingly.
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