In an interview with Moneycontrol, Amit Jain, the Co-founder of Ashika Global Family Office Services, says that going forward, "we believe that the second leg of the US bank decline will come because of slowing sales in the housing markets of the US and European markets."
In CY2023, US Fed raised interest from 0.25 percent to 4.75 percent in a single year which is the highest propensity of the rate of increase ever after the year 2004.
Amit who served the Indian banking & financial services industry for eighteen years is cautious about equity as an asset class for the short and medium term. "Until we see a continuous downward trend in the US G-Sec, we believe there are lesser chances for the global markets to outperform."
Q: Do you still expect more trouble in the US banking space?
Yes, I do believe. It is just the beginning of Global Financial Crisis 2.0 as I mentioned in my last interview with Moneycontrol on (March 10, 2023). We have already witnessed a very high default risk for 15 banks globally including some of the leading banks of the world. SVB was the first in line due to a bank run in the US.
But now, going forward, we believe that the second leg of the US bank decline will come because of slowing sales in the housing markets of the US and European markets. In CY2023, US Fed raised interest from 0.25 percent to 4.75 percent in a single year which is the highest propensity of the rate of increase ever after the year 2004.
The last time we witnessed an incremental rise in interest rates was from 2004 to 2007 when a similar rate hike took place, but it took place over a period of 3 years and even after that we had a financial crisis in 2008. It looks much riskier to us as of now.
Q: Do you think the Federal Reserve is ending its interest rate hike cycle in May 2023?
There is an 80 percent chance that the FED rate of interest may peak by July 2023. However, this prediction may change as per the changing inflation numbers of the US CPI. As of now, the US and European inflation looks very sticky which may pose a risk for global growth at least in the short to medium term.
And the reason why inflation this time is so sticky is that the amount of money printing done by the US Federal Reserve alone in CY2020-21 was almost 1/3rd of the entire money printing in the history of the US economy. Hence there are very high chances that this inflation will remain sticky and compel global equity markets to be at a lower valuation as compared to their current valuation.
Q: If we get the strong sign for the end of the interest rate hike cycle, do you see the market at new highs sooner than later?
Yes, there is a very high chance only if the US inflation comes down below 3 percent by July 2023. Post that, we can see a fantastic bull market for the global economies in the 2nd half of CY2023. However, this looks very challenging as we believe that the US Fed is in a tough spot to make a sync between its inflation numbers and GDP growth.
Till last month, the US 2-year G-sec yield was trading at 5 percent or at a P/E of 20 and the S&P Index was trading at a P/E of 22. I have not encountered such a rare combination of Bond and Equity P/E in the past 15 years.
Hence, I am cautious about equity as an asset class for the short and medium term. Until we see a continuous downward trend in the US G-Sec, we believe there are lesser chances for the global markets to outperform.
Q: Is it possible to bring inflation below 5 percent and sustain below the same in the current financial year?
If you’re talking about India, yes it is very much possible and we may see it as early as July 2023. But if it comes to the US and the UK, it may take a little longer time to attain and sustain an inflation rate of 5 percent.
The situation is particularly challenging in the UK as of now. There are very high chances that the UK will go into a longer recession compared to the US, France, and Germany.
Q: Do you have a cautious view on any sector for FY24 keeping the Indian markets in mind?
No, as of now we believe most of the sectors are fairly valued except Capital Goods which had been in the run for the past 1 year. At this moment in time, there is a tactical shift from equities to bond markets globally. Hence, we are seeing a depressed valuation for global equity markets.
It is a great time for long-term investors to start investing systematically in Banking, IT, and Pharma sectors.
Q: What is your reading on the earnings of leading IT companies?
In my view, this is the last leg of the bear phase for Indian IT companies. I have analyzed the Q4 results of Infosys and TCS in detail, and I am personally of the opinion that this is almost a bottom for Q4 results of Large-Cap Indian IT companies.
From here on we may see some stagnation and time correction in IT stocks but from a price point of view, they may be bottoming out anytime before July 30, 2023.
Q: Is it time to add exposure to green metals?
Yes, given the changing global environment and the focus of world economies on electric vehicles (EVs) it is recommended that 10 percent of your portfolio exposure should be in green metals and related sectors. In our view, by 2030, 30 percent of the global automobile market will be a part of EVs ecosystem.
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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