"While the RBI is unlikely to cut rates during the fiscal year 2024 (till March 2024) due to the Federal Reserve's hawkish tone, it's plausible that both the Fed and the RBI may opt for rate cuts in calendar year 2024 (from April onwards)," Vikas V Gupta, CEO & Chief Investment Strategist at OmniScience Capital says in an interview to Moneycontrol.
He further says even if the Fed doesn't reduce rates, the RBI might consider it in FY25.
Vikas with nearly 20 years of experience in capital markets believes the upcoming wedding and festival seasons are likely to stimulate significant consumer demand. Despite some challenges, such as erratic monsoon patterns, there is strong pent-up demand following several years of weak growth, he says.
Q: Do you believe the RBI Monetary Policy Committee's tone is more hawkish than in the August policy statement?
I wouldn't categorize the RBI's tone as more hawkish. Instead, it seems to emphasize two key points. Firstly, it mentions that India is positioned as the new growth engine of the world. Secondly, it highlights that the 250 basis points (bps) rate hike has not yet fully transmitted into the economy. These aspects can be interpreted as slightly dovish for the future, indicating the RBI's focus on supporting growth rather than raising rates.
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Moreover, the statement suggests that once the 250 bps rate hike fully takes effect, more rate cuts could be expected. However, it's worth noting that the RBI remains vigilant about inflation, which is currently within its comfort zone. The central bank is also cautious about allowing the currency to depreciate excessively to avoid importing inflation.
Q: Additionally, do you think the RBI may refrain from implementing a rate cut in 2024?
While the RBI is unlikely to cut rates during the fiscal year 2024 due to the Federal Reserve's hawkish tone, it's plausible that both the Fed and the RBI may opt for rate cuts in calendar year 2024. Even if the Fed doesn't reduce rates, the RBI might consider it.
However, it's possible that the Fed is maintaining a hawkish tone to avoid unsettling markets, as it anticipates that US inflation numbers will continue to decrease, which would be a positive outcome for most market participants based on last year's trends.
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Q: Is the rising US bond yields a significant challenge for global equity markets?
In the short term, rising bond yields can present challenges to global equity markets. However, this trend may be driven by long-term bond holders looking to exit their positions. They may be seeking higher returns in other riskier asset classes, such as US equities, technology stocks, and emerging market equities, especially if rate cuts are anticipated in 2024 and 2025.
Q: Are you concerned about the broader markets, given the recent negative turn in underlying breadth and the dominance of a few stocks driving indices?
The recent shift in focus from small and mid-cap stocks to large-cap stocks is not surprising, considering that smallcaps and midcaps had experienced substantial rallies over the past year. When market uncertainty prevails, investors tend to gravitate towards what they perceive as safer investments, often favouring momentum stocks that are already performing well. These factors could explain why a limited number of stocks are currently driving the indices.
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Q: As we approach corporate earnings season next week, what should investors pay attention to?
Investors should primarily focus on companies' forward-looking statements during their earnings calls. It's crucial to assess their expectations for future growth, current and future demand, and their ability to manage increasing input costs and maintain pricing power. Additionally, companies' capital expenditure (capex) plans are significant, not just the specific numbers but also the management's sentiment regarding large-scale capex.
Investors should be cautious of over-optimistic capex plans that might over-leverage a company, making it a less attractive investment. Overall, understanding the management's optimism can provide insights into the broader economic cycle.
Also read: Bond yields to trade high till clarity emerges on OMO quantum: Experts
Q: Do you anticipate increased spending in the second half of the current fiscal year, driven by the strong wedding season, festivities, and elections?
Absolutely. The upcoming wedding and festival seasons are likely to stimulate significant consumer demand. Despite some challenges, such as erratic monsoon patterns, there is strong pent-up demand following several years of weak growth. Moreover, an election year typically witnesses increased capital expenditure and accelerated project completion, surpassing budgetary expectations. This is especially true in the final year of a government's 10-year term, as they aim to complete as many large-scale projects as possible before their term ends.
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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