"As suggested by the US Fed and its dot chart, another 50-75 bps hike during 2023 can be seen, as consumer inflation is still well above their objective of 2 percent," Rajesh Cheruvu of LGT Wealth India says in an interview to Moneycontrol.
He feels that decades-low unemployment with robust wage growth does not allow Fed policymakers to halt the tightening soon.
The managing director and chief investment officer, with an in-depth understanding of the ecosystem and possessing over two decades worth of experience in the financial services industry, says the first half is expected to be volatile for the equity markets with worries of global growth or recessionary concerns.
In contrast, the second half could deliver healthy returns with domestic earnings growth and hopes for global economic recovery and monetary easing in 2024, says Rajesh who, besides work, also enjoys working for the improvement of economics in agriculture farming and giving back to society in the areas of health care, education and skill development.
Do you really think global investors are looking at India as a source of growth?
Global investors continue to believe India to outpace global growth, given the inward nature of the market led by domestic consumption and investments and lesser exposure to external risk factors other than energy commodities.
Do you think there is no risk to earnings for India Inc? Also, do you think the margin pressure risk to ease in the coming year for Indian Inc?
Most of the earning prangs appear behind us for now. Inventory losses owing to commodity price inflation in earlier quarters are expected to fade from this quarter with the consolidation in commodity prices and price hikes undertaken by corporates in the past few weeks and months.
Earnings and margin improvements can be seen evidently by the March FY23 quarter, conditional to no further shocks in global commodity prices.
Do you expect the equity markets to be rangebound in 2023? And what are the themes to focus on in the coming year?
Equity markets in 2023 are likely to be of two halves. The first half is expected to be volatile with worries of global growth or recessionary concerns. In contrast, the second half could deliver healthy returns with domestic earnings growth and hopes for global economic recovery and monetary easing in 2024.
Is the fixed-income market looking attractive given the rate hikes near the peak?
Global central banks will likely do a few more hikes until Q2 CY23 and might hold their monetary stance hawkish through 2023. Given the abundance of liquidity conditions posing inflation risks yet again till inflation prints decisively come down towards 2 percent levels.
Against that backdrop, although India's policy rate hikes appear to be in the last lap, RBI might continue to keep rates elevated while supporting growth through liquidity measures. Post current policy meet, drift in yields appears, pricing in another rate hike of 25 bps.
Accordingly, spreads between policy rates and benchmark yields are adjusted to historical levels. Hence, policy rates and market yields are likely to be rangebound for most of 2023 before trending down in the latter part of the year.
What are the supportive factors and challenges for the Indian economy and equity markets as we are entering into next year?
Improving rural finances and government spending on infrastructure has supported the growth over the past few quarters. Off-late RBI surveys suggest aggregate corporate capacity utilisation has been exceeding 75 percent; combined with government policies to augment domestic manufacturing through the PLI program, it contributes to a revival in Private Capex after a decade-long lull in corporate capex.
Further, many multinationals adopted China Plus and Europe Plus, leading to capacity augmentation in India. These factors have contributed to the positive macro and market outlook for India.
Do you expect one more round of turmoil in Asian currencies in the coming year?
Unlike earlier global market mayhem, this time around, Asian currencies appear better placed owing to macro and forex reserve conditions, hence unlikely to see a repeat of the past for now at least.
Federal Reserve, as expected, raised repo rates by 50 bps in the December policy meeting. Your thoughts and do you expect more rate hikes in 2023 as well?
As suggested by the US FED and its dot chart, another 50-75 bps hike during 2023 can be seen, as consumer inflation is still well above their objective of 2 percent. Also, decades-low unemployment with robust wage growth does not allow policymakers to halt the tightening soon.
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