Jyoti Roy, DVP Equity Strategist at Angel Broking, expects volatility to increase in the markets due to the hardening of the longer-term yields.
"The US Federal Reserve is expected to stay 'on hold' for a prolonged period of time which would keep short-term rates anchored near the zero mark," he said.
In an interview with Moneycontrol’s Kshitij Anand, Roy, who has over 10 years of experience in the capital market, said that despite the near-term
volatility, he is bullish on Indian equities from a medium to longer-term perspective given the strong earnings growth recovery in FY2022.
Q) What led to the price action last week?
A) The Nifty50 failed to hold on to the gains during the course of the week and corrected over 5 percent from its all-time highs due to a sharp rise in bond yields globally.
The US 10-year bond yield jumped up by almost 35 basis points from the end of January to 1.53 percent before closing at 1.41 percent on Friday.
The sharp increase in US 10-year bond yields has led to concerns that it might lead to investors pulling money out of emerging markets including India which led to the sharp sell-off in Indian equities last week.
Q) The big cause of worry for equity markets is the rise in US Bond Treasury yields which have surpassed S&P 500 Dividend Yields. Does it mean that high-flying equities have a competitor now at a relatively low risk? How does it impact Indian markets?
A) While it’s true that there has been a hardening of longer-term yields which have moved up by almost 40 basis points since the beginning of the year, shorter-term rates are still very low with the US 2-year bond yield still at 0.13 percent.
While we expect some increase in volatility in the markets due to the hardening of the longer-term yields, the US Fed is expected to stay 'on hold' for a prolonged period of time which would keep short-term rates anchored near the zero mark.
Hence, while short-term volatility cannot be ruled out we continued to remain positive on Indian equities from a medium to longer-term perspective given the strong earnings growth recovery in FY2022.
Moreover, any positive developments on the third US stimulus package of USD 1.9 trillion shall also provide support to the markets.
Q) What is your take on the December quarter GDP data? Does it mean that investors should focus on economy-related stocks?
A) The Q3 FY21 GVA growth of 1.0 percent was mostly in line with estimates. Growth was driven by agriculture, construction, and manufacturing which reported positive growth numbers of 3.9 percent, 1.6 percent, and 6.2 percent respectively.
Financials, real estate and professional services too registered a strong growth of 6.6 percent. Trade, hotels, transport, communications, and broadcast services reported a 7.7 percent YoY contraction and were the biggest drag on growth in Q3 FY21.
Overall, the numbers were mostly in line with expectations and we expect growth to improve further in Q4 FY21 as private consumption picks up.
PFCE (Private final consumption expenditure) which accounts for almost 60 percent of the GDP contracted by 2.4 percent YoY in Q3 FY21 and was the biggest drag on the economy.
GFCF (Gross fixed capital formation) registered a positive growth of 2.6 percent YoY for the quarter due to a sharp increase in CAPEX by central Government.
We continue to remain constructive on growth in Q4 FY21 and maintain our positive stance on infrastructure and cement & building material space given the government's thrust on capital spending which would be positive for these sectors.
PNC Infratech and Kalpataru Power are our top picks in the infrastructure space while JK Lakshmi Cement and Somany Ceramics are our top picks in cement and building material space.
Q) Crude oil is also trading above $60/barrel. Which stocks are likely to benefit the most and which ones could remain under pressure and why?
A) Crude oil trading above USD 60/bbl would be positive for upstream E&P companies like ONGC and Oil India. We believe that crude at USD 60/bbl should not be a problem for India and is unlikely to have any major negative impact on any sector.
However, any increase in crude oil prices to USD 70/bbl would lead to upwards pressure on inflations which would be negative for the overall markets and especially rate-sensitive sectors like banking & real estate.Disclaimer: The views and investment tips expressed by 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.