Daily Voice | Vaibhav Sanghavi of Avendus: RBI unlikely to revise inflation, growth forecasts due to Russia-Ukraine war

Although a hike in fuel prices is imminent, factors such as surging crude oil prices and excise duties will be considered to arrive at a balance between growth and inflation, Vaibhav Sanghavi, co-CEO at Avendus Capital Public Markets Alternate Strategies, said in an interview to Moneycontrol.

Given the spike in global oil prices following the Ukraine-Russia war, most analysts are of the view that fuel prices will be increased after the results of the state elections.

Sanghavi said elevated oil prices are a temporary situation. The Reserve Bank of India may stick to its current forecasts because it is likely to see inflation as transitory, said Sanghavi, who has 17 years of experience with deep domain expertise in hedge funds. Edited excerpts:

Do you expect sanctions imposed by western countries on Russia to cool commodity prices?

The recent set of stricter sanctions imposed on Russia by various countries is likely to enable talks between Russia and Ukraine. If the talks progress and tensions de-escalate, you may see cooling off of commodity prices and some relief in the global markets.

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Will the Reserve Bank of India revise its inflation forecast and GDP growth estimate if oil prices keep rising amid geopolitical tensions?

The elevated prices are a collateral result of the current geopolitical tensions, which in my view, is a temporary situation. The RBI is likely to be of the same view and may stick to the current forecast as inflation will be seen as transitory. Additionally, post the Winter Olympics, we might see supply-side shortages easing for base metal products in China.

Upward price momentum of commodities throughout the markets will persist until the conflict is diffused.

Do you expect a hike in fuel prices after the state elections?

Though a hike in fuel prices is expected in the near future, the government in its considered opinion will look at a combination of events like surging crude oil prices and excise duties to arrive at a balance between growth and inflation.

Also read | Russia-Ukraine war: Will India’s neutral stand extract a price?

Several analysts feel the Federal Reserve could delay a rate hike if the geopolitical tensions continue. Do you feel so?

If the geopolitical strife persists, we may see the Fed stepping down from its extra-hawkish stance till the situation stabilises. Even if the Federal Reserve hikes rates by 25 basis points, they are likely to calibrate the subsequent commentary in the policy statement in their upcoming meeting.

Will Ukraine-Russia tensions hit global growth in the short term?

Bearing in mind the geopolitical occurrences in the past, their effect on the global markets and growth has been temporary. Once this conflict is behind us, the markets are likely to shrug off its effects as there is a tendency of economies to bounce back. We hope that the current tension defuses quickly.

Is it time to turn cautious on mid-caps and small-caps and stay with large-caps?

When volatility spikes, a general de-grossing happens in the market and in that, amid lower liquidity, mid- and small-caps tend to get hit hard. The decision to invest in a particular segment should be arrived at after looking at valuations, apart from other technical factors.

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Do you expect a change in the mood of FIIs who have been net sellers for every month since October 2021?

We have seen consistent selling by FIIs in the past five months, which has been one of the longest selling streaks. At the same time, the overweight position to benchmarks such as the MSCI Emerging Markets is at a medium-term low. Considering this, we expect FII selling to stabilise soon.

Have you spotted any sectors that look attractive for investment?

We continue to like banking, industrials, renewables and select autos from a long-term fundamental perspective. The consistent focus of the government on the supply side through production-linked incentive schemes and other measures makes us bullish about the overall capex opportunity.

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 making any investment decisions.