The market might see short-term volatility, given that the global markets have been in turmoil since the US inflation numbers came out, but in the long term, still India to remain attractive, backed by solid growth momentum and reasonable valuation, Sonam Srivastava of Wright Research told Moneycontrol in an interview.
She feels that the US Federal Reserve could go for another rate hike of 75 bps, taking the rates to levels we haven't seen since 2008.
With experience of over 9 years in quantitative research and portfolio management, the founder of Wright Research sees the IPO buzz subdued and volatility in the secondary market. Edited excerpts:
Do you think the market will find it more difficult to reclaim its record high?
The market might see short-term volatility, given that the global markets have been in turmoil since the US inflation numbers came out. In addition, there is an expectation for another rate hike of 75 bps by the US Federal Reserve, taking the rates to levels we haven't seen since 2008. There is ample cause for concern in the short term troubling the market. Still, in the long term, we expect India to remain attractive, backed by solid growth momentum and reasonable valuation.
Why is India looking the best place from an international perspective?
India has the highest growth projections in the next year and has even picked up price momentum in the last three months. Our valuations are low compared to history, and the currency is cheap for foreign investors to buy.
India’s biggest strength is the demographic dividend. We have a large-scale skilled population with rising consumption patterns. We have a strong banking, capital market, and industrial infrastructure, which is transparent and growing. The pervasive entrepreneurship spirit and the rising ease of doing business also make India shine as an investment destination.
Due to significant volatility in the secondary market, do you think the IPO space will remain dull?
We see the IPO buzz remaining subdued and volatility in the secondary market. There has been persistent uncertainty about the extensive list of tech unicorns turning IPOs. Pharmeasy has already put its plans on hold, and we haven't seen any new announcements. Given the state of the recent entrant tech IPOs like Paytm, Zomato, etc., companies will not push for overvalued issues while the markets are slow.
Do you think the US Federal Reserve remain aggressive in rate hikes in upcoming policy meetings? What do you make out of the rising US dollar index and US bond yields?
It is increasingly evident that the US Fed will need a more aggressive path of interest-rate hikes, seeing how deeply entrenched inflation has become in their economy. Inflation stems from an overheating labour market, unsustainably strong wage growth, and higher food prices. But all is not lost, there are mixed numbers. Job growth numbers are still robust. We could see a much clearer picture form in the coming months.
The US Dollar Index has broken records and touched 110, which was last seen in 2002. As long as the FED keeps hiking rates, we can expect the dollar to keep getting stronger as people hoard the greenback. The 10-year US Bond yields have touched 3.5 percent, and 2-year has touched 3.8 percent, which was last seen in 2007. This is a knee-jerk reaction to the rate hike expectations.
As the Fed seems aggressive in rate hikes to tame inflation, do you think the expected recession or slowdown will keep the IT space volatile in the medium term? Does that mean one should stay away from the sector?
The IT sector has been battered since the inflation numbers came out in the US. As the Indian IT industry caters mainly to the US technology companies, Nifty IT has fallen in sync with the US market, while the pain hasn't been as acute for other sectors.
Given the volatility in the US market and the strong correlation of the IT sector with the US markets, we see volatility persisting in the IT space until the fear of inflation disappears. Therefore, we can stay cautious of the IT sector for the short term but accumulate some high-quality IT names for the long-term horizon at these levels.
Do you advise buying in auto space on every significant decline, considering the expected growth?
The auto sector has become a favourite of the market. The declining raw material and fuel prices, strong domestic demand, and the festive season rush make the industry attractive, as the prices show. In addition, the new wave of electric mobility and green tech has given this industry a new lease of life.
If the market offers a significant short-term correction, it would be an excellent opportunity to accumulate auto stocks which are becoming expensive.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.