Ashish Chaturmohta-Fund Manager-PMS Strategy- Apex at JM Financial Services thinks it is too early to say that the global banking crisis is over but Indian banks are in a much better position.
Chaturmohta says the financial year 2023-24, which begins on April 1, will be the year where things will start normalising and there is little chance of Nifty slipping to the lows of June 2022.
In an interview to Moneycontrol, he says manufacturing and capex is where we will deploy money and stay away from real estate. Edited excerpts:
After the recent Fed commentary, can it be concluded that the US central bank may announce one more hike and then take a pause in the face of the banking crisis? What is the major task for the Federal Reserve?
Post-March 2022, the rate hike this week was the ninth rate by the US Federal Reserve. The rate-setting Federal Open Market Committee highlighted that future rate increases are not assured and will depend largely on incoming data.
As per the commentary from the Fed, they expressed caution about the recent banking crisis, which indicates that hikes are nearing an end. In the last several Fed meetings, the Fed has been clear about bringing down inflation to 2 percent and time and again that has been highlighted as the utmost priority.
Can you confidently say the banking crisis is over?
There are many moving parts in the banking system. Hence, it is very early to say if the crisis is behind us, as of now. The quantitative tightening (QT) shrinks the Fed's balance sheet by either selling Treasury’s (government bonds) or letting them mature and removing them from its cash balances. This removes money from the economy and leads to higher interest rates aided by higher inflation, which is way above the Fed's inflation target of 2 percent, keeping the fund flow in the global economy in check.
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However, the recent turmoil has shaken the confidence of people in small/regional banks in the US. In the Indian market, the RBI has been very careful and has placed certain controls in place owing to which the Indian banking system is not at such a risk. However, keeping (in view) what is going around at the global level, it is too early to say anything as of now.
After the recent correction, do you see good opportunities in the BFSI space?
The current financial year has been the best in the last decade for the banking sector, witnessing the highest credit growth. Post-2018 macro slowdown fuelled by IL&FS/DHFL crisis banking sector took a major hit in terms of poor asset quality, inability to raise funds, etc., post which the balance sheets have emerged stronger than before.
Hence, both, private and public banks are well-placed to withstand the current turmoil. Hence, in these times larger banks should be accumulated on dips.
Do you see a possibility of the Nifty and the Sensex falling below June 2022 lows in this year?
In the last 18 months, we have seen, high inflation globally, the breakout of the Russia-Ukraine war, crude touching $120 a barrel, the Fed raising interest rates aggressively, etc, inspite of which markets eventually crossed all-time high and now corrected back to 17,000 levels.
The upcoming financial year/current calendar year would be a year where things would start normalising. Hence, there is very little probability of the Nifty touching back to the June 2022 levels.
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Do you expect markets to close the next financial year with at least a 15 percent return as most of the risk factors are known now?
The FD rates/NPS rates are close to 8 percent, which are adjusted owing to inflation. Additionally, owing to QT globally, money flow would be limited and we see stock-specific action taking place rather than the index performing at a broader level.
Hence, capex-related stocks/manufacturing theme, etc would continue to do well in India and the stocks would highlight the return accordingly.
Is it better to stay away from realty space, given the rising interest rates and declining IT salaries?
In the last two years, salaries have grown multi-fold and realty has been an indirect beneficiary. The realty sector takes several years to perform, as the real estate industry is not only a function of demand-supply but is also affected by industry-specific issues like unsold inventory, new inventory being built up, etc and macro issues like interest rates, rise in commodity prices like steel, cement, etc.
Hence, real estate is an elephant and takes time to move. Hence, real estate has a lot of moving parts and it's better to stay away. However, one can bet on real estate by betting on cables and wires, tiles and bathware, etc, i.e. play real estate indirectly.
Where do you want to deploy your money in FY24?
In FY24, manufacturing and capex theme is the one where we would deploy money.
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