The markets still haven’t fully discounted rising US interest rates, inflation risks, outcomes of geopolitical tensions and commodity and crude oil prices, Radhika Ravishekar, chief investment officer at General Insurance Corporation of India, said in an interview to Moneycontrol.
She ruled out the possibility of indices setting record highs soon, saying volatility is expected to continue. Even in the case of a recovery, there will be some selling on every rise until conditions stabilise, said Ravishekar. Edited excerpts:
Since October, the market has rebounded twice to move above 18,000 on the Nifty 50 and 60,000 on the Sensex. If the market recovers this time, will the benchmark indices go beyond old record high levels?
Geopolitical tensions, rising inflation, tightening of liquidity and Covid-19 disruptions in China have raised market volatility across asset classes and accelerated the risk-off sentiment. Volatility is expected to continue. Even in the case of recovery, for the indices to go beyond the old record high levels would be a far reality as markets would witness some selling on every rise till the conditions stabilise.
Easing of currently volatile crude prices, turnaround in FII flows, and bottoming of the rupee could give the Nifty some momentum, but underlying global inflation risks resulting in faster-than-anticipated rate hikes are the key downside risk.
What pockets look attractive to buy now, especially after the significant correction in the last one-and-half-months?
We are seeing a lot of sectoral churning. Leaders of the last two years – IT, pharma, metals and mining – have given up their leadership positions and are passing the same to sectors like oil & gas, finance, automobiles.
Quality private banks have done very well and are available at good discounts compared to their yearly highs. The most neglected sector is auto. Two-wheelers will witness a smoother transition compared to four-wheelers as they are trading at attractive valuations.
Cement (due to higher infrastructure spending and the ability to pass on increased raw material costs) and defence stocks can be looked into. Defence stocks will witness import substitution along with PLI (production-linked incentives) unleashing a good amount of exports.
Will the Reserve Bank of India cut the growth forecast further in the June policy meeting if inflation concerns persist?
The RBI in February 2022 cut the growth forecast from 7.8 percent to 7.2 percent. Many rating agencies have reduced the growth forecast for India and so it is expected that the RBI may cut the growth forecast.
Will the RBI be more hawkish if the inflation risk persists?
The RBI will raise the inflation projection and is not in denial mode to consider more interest rate hikes… the RBI may come up with another two to three 50 basis point increases in repo rates in the next six to eight months.
FMCG is the least affected sector in the past one-and-half-months despite inflation worries. Is it time to go overboard on this sector?
FMCG stocks have been under pressure in the recent market selloff due to concerns over inflation leading to margin pressures and weak demand… The market is anticipating a scenario of stagflation, which will limit the upside in FMCG stocks. As FMCG stocks may witness healthy growth in the long term, investment is to be made with a three-year horizon.
What are the risk factors yet to be discounted by the market?
The rise in interest rates in the US, inflation risks, further outcomes of geo-political tensions and commodity and crude prices are still not very much discounted by the markets. Any further adverse news may give some shock to the markets.
Metal and realty are the most affected sectors in the last one-and-half-months. Is it time to accumulate them or should one stay away from them?
There is still good momentum in metal stocks, with stable earnings for the last couple of quarters. With ‘Make in India’ and other government initiatives, metal companies have the ability to sustain growth and profitability.
After the easing of the pandemic, there is good growth in infra projects and the housing sector. Increased infra spending by the government and high demand from consumers in the housing sector give an indication of good growth in this sector.
To conclude, one should be overweight in quality large-caps within whichever sector one chooses as the damage would be the least.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 making any investment decisions.