Rohit Beri, the CEO & CIO at ArthAlpha is cautious when it comes to US equity markets. "I agree with the AI theme overall, but maybe it's overdone in the short run, so we may see some pullback over there," he said in an interview to Moneycontrol.
As far as India is concerned, he believes risks are more on the upside and markets may rally sharply once it starts seeing earnings growth coming back and sentiment turning in the market. "I'm reasonably bullish and expect equity markets to give double digit returns over the next 12-month period," he said.
Do you believe gold serves as a strong hedge or insurance for a portfolio? Given the sharp rally so far, would it be wise to stay away from fresh gold buying at this stage?
Gold has always been a good hedge against inflation in the long run. But, short run correlation between inflation and gold is not that strong. So, when one thinks of gold as a hedge, one has to be very careful. It is definitely a hedge for black swan events. One should not confuse black swan event hedge as an equity downside hedge.
The last few months have been an unprecedented rally in gold due to de-dollarization resulting from change in US geopolitics. I expect the trend in de-dollarization to continue and central bank demand for gold to stay strong. However, the current rally may not last for long. So, one has to be very careful.
I will advise investors to not look at short-term tactical trades in gold but to focus on long-term asset allocation. Taking some profits in gold, particularly in silver at this stage, might actually be a good idea.
Do you expect the year ahead to be a strong one for equity markets?
I'm cautious when it comes to US equity markets. There has been an unprecedented rally in global tech stocks. I agree with the AI theme overall, but maybe it's overdone in the short run, so we may see some pullback over there.
As far as India is concerned, I think the time correction has been substantial. I believe risks are more on the upside and markets may rally sharply once we start seeing earnings growth coming back and sentiment turning in the market. I'm reasonably bullish and expect equity markets to give double digit returns over the next 12-month period.
Do you think foreign institutional investors (FIIs) are gradually shifting more capital towards India?
I'm not particularly seeing a strong inflow as yet, but clearly the outflow seems to have stopped at least, if not at least, then for a temporary basis. I think India at current level looks attractive to me. Maybe not as attractive as China, which is more attractive for sure from a valuation perspective. But I personally think post this earning cycle we should see demand returning again in India.
Remember FII money is comparing what they can make in India to what they can make in their home markets or other emerging markets, including China. So, it's a relative value game. But India does represent a strong capital appreciation opportunity for investors, so I am reasonably bullish about the market.
What are your top picks - segments or stocks - in the consumption space?
I can't talk about stock picks, we are a quant and we play more factors in quants than stocks. From a factor perspective, we will continue to bet on growth and earnings. I do believe that momentum as a factor will start picking up after a long underperformance cycle. Again, take it with a pinch of salt or a bucket of salt. Mean Reversion is the truth of life, so after such a tremendous underperformance, I expect that momentum will make a comeback. Maybe not very strong in the short run, but we should start.
This current month is a good month for momentum. I do see materials doing well, for e.g., cement, solar. From a medium-term perspective, defence should also, I still continue to stay bullish on defence. I am also bullish on banks, given the RBI's recent relaxations in the norms.
Which investment themes are likely to strengthen a portfolio in terms of returns in the next one year, and why?
We are not a thematic player and we don't really think one year out. As of now, as I said, our focus is on growth and earnings. For the time being we will continue to play that. We do expect a comeback on momentum as a strategy and we have a positive allocation to that as well. Value has done very well, exceedingly well. I believe value may lose out to let's have momentum or growth strategies over the next 12-month period. But as a quant, we really don't take that longer calls and we very dynamically adapt to changing market conditions.
Do you expect the US Federal Reserve to continue its monetary easing cycle in October and December? Also, do you believe the recent US Beige Book signals a loss of economic momentum?
I believe we will start to see the effect of tariffs on the US economy as we go forward. The Fed's job, I believe, will get really hard because on one side tariffs will induce inflation, on the other side they will slow down economic activity and may take the economy towards recession and put the US into a stagflation situation.
I do believe at the moment and I expect the Fed to continue the rate cutting cycle, but at some point, in time if the inflation starts hitting them, then it may become a very difficult situation for the Fed to manage.
As of now from our perspective, it's wait and watch and see how things pan out. How tariff linked inflation and how tariff linked slowdown is passed into the economy and what is the net effect post Fed cut rate is yet to be seen. It's unprecedented what's happening.
Uncertainty will continue, equity markets globally will stay volatile. Again, as I said earlier, de-dollarization to continue and gold will likely stay strong. I don't expect the kind of rally we saw and there might be some sharp retracement over the next few weeks.
But overall gold strength and de-dollarization to continue. And as of now, yes, the Fed continues on the easing cycle.
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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