A sharp slowdown or a recession in the US economy seem likely to Mihir Vora, the chief investment officer at Trust Mutual Fund, if the situation of inflation and high interest rate continues.
Talking to Moneycontrol, he shared that he believes interest rates in the US and the developed world are likely to remain higher for longer as inflation and growth are both higher than expected, especially growth.
Vora, seasoned in the domain of investments for nearly three decades, is bullish on the power sector. "Renewables is obviously the high growth space but there is going to be demand for conventional energy too if the GDP continues to grow at a healthy pace," he says.
Excerpts from the interview:
Do you see the possibility of a recession in the US, given the economic data points and the two ongoing wars?
Yes. Interest rates in the US and the developed world are likely to remain higher for longer as inflation and growth are both higher than expected, especially growth. The bond markets are reflecting this view and hence the 10 and 30-year bond yields are moving higher. Now around 5 percent which is a level not seen in the last 15-20 years.
While overall consumption is still robust, investments and real estate are slowing down. There is a high probability that we will see a sharp slowdown or even a recession in the US if these conditions of high inflation and high interest rates continue.
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In times of correction, retail investors get worried about their investments. Do you think they should continue with their SIPs?
Absolutely yes. The core rationale to recommend SIPs is precisely to tackle volatility. You will end up investing some amounts at lower market prices and some higher, but eventually the long-term compounding benefits will accrue. So, any systematic investment decision taken in the past should be certainly continued.
Do you expect the correction to be over 10 percent from record high levels?
We already saw 5 percent correction, so another 5 percent is not a big deal. We could see some more downside but having said that, it would be nothing out of the ordinary. We usually see 5-10 percent drawdowns at least once or twice every year.
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Where do you want to put your hard-earned money given significant corrections from record high levels?
Since the Indian interest rates have moved up, I would say that the fixed income space has become interesting. So, apart from equities, I would recommend some allocation to fixed income too. Moreover, with many geopolitical risks and currency volatility around the world, a small allocation to gold can also be looked at.
Are you bullish on the smart meter theme?
I am bullish on the power sector overall. Renewables is obviously the high growth space but there is going to be demand for conventional energy too if the GDP continues to grow at a healthy pace.
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Moreover, with increasing supply from renewable sources, the transmission and distribution systems need a major overhaul. You also want to discourage electricity consumption during hours where renewable sources are weak e.g., night. So, the metering and distribution systems need to be ‘smart’ so that differential pricing depending on time of consumption during the day can be implemented. Moreover, smart meters also reduce theft. So, I see significant investments in this segment.
Do you see froth in midcap and smallcap space even after the recent corrections?
I would not paint all segments or stocks with the same brush. Within midcaps and smallcaps, there are significant variations in valuations. Yes, there are stocks which are still overvalued and current prices still discount too much growth which may not be achievable but midcap and smallcap space will always be a stock pickers’ canvas. This is because most of the exciting sectors from which we expect high growth are represented only in the mid and small space.
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For example, we are seeing a revival in the investments by the private sector and order books of many capital goods companies are showing very good growth. Stocks linked to renewable power, power transmission and distribution, defence, electronics and durable manufacturing, China-plus-one theme, and beneficiaries of the production-linked schemes for manufacturing are not available in the Nifty50 or largecap indices.
Further, there are many mid- and small-cap chemical and pharma companies that are investing and expanding capacities significantly for the local market as well as exports.
Do you expect the FII outflow to continue through this year?
FII activity usually slows down in December as the western fund managers go on vacation. With the Israel and Ukraine situations still on a boil, there may be continued risk-off sentiments. So, we may see some more weeks of selling in November after which activity may slow down.
Your take on the September quarter earnings so far...
Overall earnings have been as per expectations so far. IT is slowing down. Banks are doing well in terms of growth while some banks have shown some margin compression. Asset quality remains good. Commodity companies have shown mixed results and FMCG continues to be weak. We do not see significant upgrades or downgrades to Nifty earnings estimates after all the results are out.
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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