IT has been one of the worst-performing sectors this month but the underperformance is not a surprise to me from a quant model perspective, Rishi Kohli, Managing Partner and CIO - Hedge Fund Strategies at InCred Alternative Investments, says in an interview to Moneycontrol.
For the near term, IT is clearly not attractive, he believes.
On the FMCG space, the finance veteran, with over 21 years spent leading both sell-side and buy-side businesses in the public equity markets space, says the sector's ranking with the quant model perspective has been improving this month. So, on the balance sheet, it does look bullish in the near-term.
But whether it is among the most bullish sectors will get clearer only at the end of the month, he says. Excerpts from the interview:
What is your stance on IT sector and do you see more bad news on order flow?
I am a quant-focused more on statistical, technical, and cyclical techniques hence news does not bother much to me. However, it is interesting to note that we do have sector rotation models and IT was one of the worst ranking sectors in the same for the current month.
Hence, the underperformance of IT this month is not surprising to me from a quant model perspective. Of course, our models select and rotate across sectors on a monthly basis so things could change in a few months on such rankings. However, for the near term, IT is clearly not attractive.
Do you expect the flow to shift from IT to pharma if the concerns remain in IT space?
The same sector rotation model I mentioned had a much better ranking for pharma for this month hence again not surprising that it has performed better than IT.
The pharma sector shows bottoming signs and strong recoveries after an extended decline and the initial thrusts have strong technical patterns which suggest that they could continue to do well in the near-term. But it is still too soon to say whether this can convert into a secular kind of move.
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What's your take on the 'de-dollarisation' theme?
Recent episodes of various countries trading with other using their respective local currencies seems to have started a new trend and picking up some momentum. Of course, dollar being the global reserve currency for so many decades means that de-dollarisation will progress at a slow pace and have impact over a period of time.
However, the recent trend further fuelled by US sanctions on various countries which has increased in recent times, seems something that will not go away easily and has more chances of picking up steam rather than toning down.
Hence, this is a big macro theme to study closely and analyze over the next few years as it can have large consequences for global geopolitics, growth, trade etc. which can have large positive effects on some sectors and countries while having large negative effects on some sectors and countries.
Do you expect more weakness in US dollar as we are near the end of interest rate hike cycle?
The dollar clearly seems to have peaked out in the medium to long term. There is strong technical support at 100 and strong resistance in the 103-105 zone. It is clearly a sell on rise for now and can collapse quickly once 100 is breached on downside. But it could consolidate and remain choppy in this zone in the near-term till some triggers of clarity in peaking of inflation and the start of decline in interest rates starts happening.
Are you bullish on the FMCG space?
Till last month, our sector rotation model did not have FMCG in the top few rankings but it was still relatively stronger compared to many other sectors. However, its ranking has been improving this month so on the balance it does look bullish in the near-term but whether it is among the most bullish sectors will get clearer only at the end of the month when our monthly rebalancing happens.
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Based on the current movement in relative strength and momentum, it does look bullish in the near-term. However, the dispersion in returns of stocks within the same sector has also increased in recent months and one has to keep that in mind when selecting stocks even in a bullish sector as not everything is moving together in such sectors currently.
What are the major challenges for the equity markets and economy as we entered FY24?
Similar challenges to what we saw in FY23 are currently also the focus like high inflation, uncertain global geopolitics and uncertain earnings growth of companies. It seems that inflation may have peaked out and interest rates may also have peaked and it is just a matter of time before these decline and thereby give positivity to the equity market.
However, past historical cycles of high inflation have shown and proved that inflation is very sticky and analyzing its peak can be very difficult hence we have to live with that uncertainty for now. Further, even global geopolitics is currently very unstable in certain regions and is the wild card that could swing either way. So these are definitely big challenges for the economy and equity markets in the year ahead.
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Locally also, for many years now the actual earnings growth has been significantly lower than the initial expectations and this year has again started in a similar fashion. So we would need that to change for equity markets to get into a secular bull run phase which I believe is possible over the next few years but we haven’t got all the initial signs for that yet either from a fundamental perspective or from a technical perspective.
What is your strategy behind a launch of Rs 1,000-crore category III open-ended AIF?
This will be a long-short quant-focused, equity derivative-based Fund targeting debt-plus returns and risk objectives. The goal is to have a low risk of <2 percent and still achieve >14 percent returns while having high liquidity. The reason this is interesting for investors is that long-term taxation benefits of debt funds, as well as MLDs (market linked debentures), have recently gone away thereby leaving investors with less choices for generating higher returns while retaining debt product-like low risk.
Further, the yields in debt products was higher over the past year due to the rapid rise in yields globally and in India but now its getting clearer that the yields will remain at current high levels only for the near term say the next 6-8 months. Post that they should start coming down hence again leaving investors with less choices for making attractive returns with low risk, InCred Alternative Liquid Fund fills that void potentially.
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.
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