Manjit Singh, the associate partner at Alpha Capital, expects a good earnings season, saying most of the provisional figures for the December quarter point to the continuation of positive results seen over the last few quarters.
These expectations are also the reason for the market surge despite higher valuations of Indian firms, says Singh, who has nearly two decades of experience in wealth management and business development.
In an interview to Moneycontrol, Singh says he remains cautiously optimistic on markets with a bias towards largecaps in the near term, though some corrections in the short term can’t be ruled out. Edited excerpts:
When do you expects interest rates to be cut?
Most likely the Reserve Bank of India (RBI) will cut rates sometime in the second half of 2024. The point to note is that the central bank’s position is still "withdrawal of accommodation" and it must adopt a neutral position before lowering interest rates, which is expected in the later part of the year as a result of easing inflation.
As per RBI’s projections, the CPI inflation is expected to average 5.4 percent in 2023-24 and 4.7 percent in October-December 2024, which is closer to the bank’s target of 4 percent.
Even the US Federal Reserve, while holding its key interest rate steady in December, indicated that it would begin lowering policy rates in 2024. Having said that, central banks would continue to keep a close eye on inflation and some of the key economic indicators before deciding any change in the policy stance.
Also read: Global economy surprisingly resilient, but outlook 'dark': World Bank
What is your reading of the provisional numbers of Indian corporates ahead of the December quarter earnings?
In terms of earnings, the majority of the provisional figures released for the December quarter show a favourable trend in continuation to the positive results seen over the last few quarters. These strong earnings expectations are helping the markets surge despite higher valuations of Indian listed firms vis-à-vis their long-term averages.
Do you see the rural economy gaining momentum?
India’s rural sector is one of the major driving forces behind the economy, providing employment and income to millions. While there are risks of lower agricultural output and rural consumption, thanks to government initiatives, increased disposable income and infrastructural development, the rural landscape should gain momentum.
As per a recent report, a majority of economists believe the gap between rural and urban consumption will narrow over the coming two to three years.
Also read: Infosys Q3 Preview: Lower pass-through revenues, higher furloughs to be a drag
Do you expect the two-wheeler segment to outperform other auto segments in the coming months?
Two-wheeler demand has started showing trends of higher growth potential, which is somewhat a reversal of sentiments. Urban markets are especially expected to continue to do well along with some early signs of recovery in the rural markets too. Two-wheeler segment should see high single-digit or low double-digit CAGR over the next two-three years, outperforming other auto segments.
Is the real estate sector overbought?
The real estate industry has witnessed a genuine cyclical upswing, which is expected to persist for some more time. Most of the big cities in India continue to see new highs in the number of new registrations, indicating overall bullish sentiments.
Investors have also aggressively bought real estate stocks as the upswing in the market continues and shares of top-listed real estate companies have risen more than 50 percent in the past year. We are optimistic about select companies that have strong balance sheets and have cash-generating projects lined up.
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Will the market consolidate in the coming weeks?
While there is always a possibility of some corrections in the short term, primarily because of the higher valuation of the Indian market, we continue to stay cautiously optimistic on markets with a bias towards largecaps in the near term.
Some of the key indicators to watch out for over the next few weeks are the start of the Q3 earnings for Indian corporates and any escalation of geopolitical risks caused by Russia- Ukraine and/or the Middle East crisis.
Is this the right time to take fresh entries into the defence space?
Defence stocks have surged recently, supported by the Make in India initiatives and ever-increasing order books. The industry has received priority from the current administration and most predict this trend to continue. Even though the stock prices look a bit stretched in terms of valuations, from a long-term perspective they still look good, taking into account the significant growth potential of the overall sector.
Do you expect any major policy announcement in the interim budget?
In light of the upcoming Lok Sabha elections this year, only an interim budget will be prepared. This also means that on February 1, 2024, no significant announcements or policy changes are expected in the budget speech.
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