Daily Voice | This equity veteran pins hopes on resilience of US economy for markets to stay buoyant

The IT sector is getting bifurcated into two segments - large companies and smaller companies. Large companies are remarkably stable but have reached the limits of growth but have improved their profit growth through innovation. There has been an exodus of talent from larger companies to small and mid-tier companies which have benefitted growth for these companies.

Consequently, smaller companies offer a more focused way to invest in the IT sector. Investors have also identified this trend, which explains the craze for these stocks.

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Do you expect the valuations to remain expensive in pockets of midcaps and smallcaps which traded at all-time high?

We will always see this trend of overvalued stocks and undervalued stocks play out. The average PE of market over the past five years has gone up over the previous five years and is amplified in some sectors and stocks. However, markets also punish weak earnings and that brings normalcy to the market.

Do you see less risk of recession in the US than it was earlier?

We see signs of a slowing economy as interest rates and tighter liquidity begin to impact consumer sentiment and expenditure. Car sales have weakened as also home sales, indicating that the economy is slowing down.

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Jobless claims are also increasing gradually. However, with the US economy investing in replenishing its manufacturing base and infrastructure, a recession may be avoided. With US elections next year, the incumbent president would not like to have a recession and high unemployment at the time of voting.

Do you think the rate hike cycle seems to be ending with the last Federal Reserve meeting in the current calendar year?

Inflation numbers have started cooling and we can see further decline if food prices remain where they are or decline from current levels. Oil prices continue to be benign and with labour markets also cooling, the need for further rate hikes diminishes considerably.

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The reduction in the Federal balance sheet will continue to act as a brake for the economy as scarcer money will likely expand spreads across the spectrum, without further rate hikes.

Do you expect the rally to continue in the US markets as S&P jumped 8 percent and Nasdaq Composite 10.5 percent in November?

The US economy is resilient and manufacturing is coming back strongly, as import substitution gains pace. We need to monitor the interest rate cycle, but that said, the resilience of the US economy could help markets remain buoyant.

Do you think worrying signs will continue in the Chinese economy for the rest of financial year?

China will continue to face its challenges of excessive leverage and declining workforce. It has developed significant infrastructure and technology and will continue to be a strong contender in several sectors.

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While GDP growth may be lower, we can expect Chinese companies to move away from low-cost manufacturing to premium products such as EVs and also grow their services sector. So yes, Chinese economy is likely to under go a transition with lower and more profitable growth.

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