ASK Investment Managers believes that as growth style of investing comes back into focus as a consequence of fall in commodity prices and topping out of inflation expectations, spaces with strong growth tailwinds should again do well.
Talking to Moneycontrol, Prateek Agrawal, Business Head & Chief Investment Officer, says ASK is positive on private sector retail lenders, chemical businesses, select APIs (active pharmaceutical ingredients) and platform businesses.
Seasoned for over over 27 years in capital markets and known for his long, distinguished sell side research, investment banking, and advisory expertise, he says After the July policy meeting, Prateek provides strategic direction to fund managers and research teams.
"The Fed's focus has to be on oil prices," he says. "If they also soften, policy stance could incrementally be less hawkish." Excerpts from the interview:
What are your thoughts on Fed policy decision and commentary? Do you expect another 75 bps hike in interest rates in September meeting?
The Federal Reserve has indicated that it would be data driven and has left the option open for next rate increase to be large. I think the stance is still hawkish while the market reads it as otherwise. The job scene in the US is still very good and the US could do with lower growth. Also, while commodity prices have fallen over the past 2 months, crude is stubbornly strong. With decrease in Russian production, the situation would remain very tight. The next policy move is in September and inflation data till then can be either-ways.
For the present, 10-year bond yields have softened and are now decisively below 3 percent. This means that the rate increase expectations are in the price (yields) and going forward, unless the rate increase is less/more than expected, the volatility in the markets, both equity and debt, should be lower than what we have seen in the past on fed actions.
I think the key would now be to see how and if the planned acceleration in taper impacts the markets. I believe that since this was announced at the beginning of the taper period itself, market participants should have adjusted for this as well.
I think going forward, focus has to be on oil prices. If they also soften, policy stance could incrementally be less hawkish.
Many experts feel the Fed will not let the economy fall into recession by taking every precautionary measures. What are your thoughts and what is the probability of US facing recession?
Primary objective of growth is to get employment for people. If growth just results in inflation and wage increases are ahead of growth then policy should be expected to dampen the growth sentiment. This is to tame inflationary expectations from getting embedded in the economy.
I think policy relaxation would start as people start coming back for seeking jobs. I do believe that given the strong sentiment towards make in America, reversing a tight monetary policy, to again revive growth should not be difficult. Spends towards rebuilding America, for example, coinciding with monetary policy becoming less hawkish should enable the same.
India's economy is showing great resilience and important leading indicators like credit growth, demand for two-wheelers, passenger vehicles and electricity generation reflect a strong rebound. Do you see the possible US recession and slowdown in Europe as reasons to be worried?
At the same time capex is now a growth driver. House buying activity remains strong. Government sprends on infra is showing strong growth. Corporate India is embarking on capex. Capex should support multi-year growth.
What are your thoughts on corporate earnings announced so far?
Beginning of the result season, we expected our universe to deliver over 20 percent growth while Nifty index earning growth was expected to be nearly 30 percent. Overall the results, as yet, are more or less in line with our expectations.
Banks have delivered good results. IT has been a bit soft. Consumers are benefitting from a low base effect and have delivered strong growth.
Sectors that took the lead in the recent market recovery are capital goods, FMCG, power and realty. Do you expect more rally in the said sectors?
We believe that as growth style of investing comes back into focus as a consequence of fall in commodity prices and topping out of inflation expectations, spaces with strong growth tailwinds should again do well.
We are positive on private sector retail lenders, chemical businesses, select APIs (active pharmaceutical ingredients) and platform businesses. Businesses such as defense and electronics that would benefit from make in India thrust of the government should also do well.
As the market seems to be on a recovery mode, do you expect revival in primary market segment soon?
Yes, this is always the case.
Many experts say the worst for the rupee is over now and maximum can fall up to to 81-82 a dollar.
I think this is a year when the pressure on the INR may sustain unless the oil prices recede sharply. Indian growth would be faster than global growth and that should be expected to result in a large trade deficit. This would cause a depletion of our forex reserves unless the capital account sees strong inflows.
In the year of global tightening, capital account flows should be expected to be subdued. Hence, overall, one should expect the pressure on the INR to continue.
I don't think this is a negative. An orderly market driven currency would reduce the pressure on Forex reserves. Also, some depreciation does provide some buoyancy to domestic margins and profits.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.