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Daily Voice | 2H2022 could be more cheerful for market, says founder of Wright Research

Markets work on expectations, and with commodity prices cooling off and global inflation contracting, equity investors are buying on the expectation of an economic recovery.

August 06, 2022 / 05:22 PM IST
Sonam Srivastava is the Founder of Wright Research

Sonam Srivastava is the Founder of Wright Research

The founder of Wright Research, Sonam Srivastava feels the second half of the year might be more cheerful than the first half as the consumer sentiment is improving, monsoon has been healthy, inflation is cooling down, and the festive season is beginning.

She expects the recovery in market to sustain for some time.

Srivastava has been working as a quantitative investment management and trading professional for more than 9 years. She sees two significant risks for the economy at this time - global inflation and global geopolitical tensions.

Here are edited excerpts from her e-mail interview with Moneycontrol's Sunil Shankar Matkar:

What do you make out of the Monetary Policy statement? Do you expect more rate hikes in the near future?

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The RBI has taken a prudent stand of erring on the side of caution by hiking the interest rates by 50 bps and maintaining their stance of withdrawal of accommodation. While the economic scenario has improved with the easing of crude prices and the peaking of inflation numbers, the RBI is cautious of the global macro conditions hampering the growth in emerging markets and has tried to bridge the interest rate differential with the US market.

The rates have now reached the pre-pandemic levels, and the RBI governor has said that further actions will be data-dependent. So my projection here will also depend on the US inflation data and the US Fed actions. If things start cooling off in the US, we could see a pause in Indian rate hikes, but otherwise, we could see the hikes continue.

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After the policy, do you think the RBI is looking less worried about inflation risk now especially following the decline in commodity prices?

The RBI has acknowledged the recent fall in global commodity prices, but they have not brought down their inflation projections yet. The RBI has maintained the inflation projection at 6.7 percent for FY23, with expectations of 6 percent in Q4FY23 and 5 percent in Q1FY24.

The predictions by RBI are cautious, and maybe they could have been brought down a bit, but we might see crude prices recent fall in global commodity prices in winter, and these numbers are more suitable.

Do you still doubt the current market rally that has taken the Nifty to a three-month high? Can the Nifty be able to reclaim its record high by December 2022?

Markets work on expectations, and with commodity prices cooling off and global inflation contracting, equity investors are buying on the expectation of an economic recovery. Even though we are not out of the woods with global geopolitical tensions and recessionary fears, the tides seem to be turning for the better.

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Given that we are recovering from a 52-week low, we expect the recovery to sustain for a bit more time. The second half of the year might be more cheerful than the first half as the consumer sentiment is improving, monsoons have been good, inflation is cooling, and the festive season is coming.

What are two risk factors that you still think can dampen the market sentiment and push the market back to June lows in the coming months?

The two significant risks for the economy at this time are - global inflation and global geopolitical tensions.

First, the US Inflation data will govern the direction of global markets. If the numbers are worse than expected, we could see volatility as the US FED will continue to be hawkish, and equities, especially emerging markets, will be in trouble.

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Similarly, while the Ukraine-Russia conflict remains a significant cause of concern for the world, the new tensions between US-China-Taiwan have also caused worries for the market. Therefore, the progress in both geo-political crises will be a big trigger for the market.

After looking at the stellar rally from March lows and year-to-date performance, do you think the auto space is looking overbought now?

Auto space has had a spectacular rally. The initial part of the rally in Autos was due to the rise in consumer demand. But later, the cooling off crude and metals prices made Autos, the consumer of commodities, desirable. The significant CAPEX by the automakers along with the festive season might keep the cheer up.

But on the other hand, the prices seem to have run up quite a bit, and we could see a breather. We expect some price correction, but we have a positive bias for the industry.

Do you think the corporate earnings largely met your expectations or were better than estimates? Are you still worried about downgrades?

The corporate earnings have been spectacular this season, especially by banks, autos, and energy sector stocks. Both sales and profits for the aggregate earnings declared till now for India Inc are roughly 30 percent-plus up over last year. The downgrades or worries have mostly come from the IT sector, and that is because the US economy fared poorly the previous quarter.

But with recovery starting, we can see the outlook getting better. So at the current pace of numbers, we are not very concerned about any significant downgrades, even though the numbers by metal companies coming soon can be a shocker.

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.
Sunil Shankar Matkar
first published: Aug 6, 2022 08:55 am
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