Given the economic backdrop and further slowdown predicted by most economists for the US, it is prudent to expect caution on IT management commentaries, says Chandraprakash Padiyar, senior fund manager at Tata Mutual Fund.
IT management commentary over the past few quarters have turned more and more cautious with a sustained decline in discretionary spends.
The market veteran with more than 22 years spent in research and fund management believes crude price is one the biggest risk factors for India for the rest of this fiscal, while the equity market is also expected to react to the elections in five states between November 2023 and March 2024.
Excerpts from an interview with Moneycontrol:
What do you expect from IT management commentaries?
The IT management commentary over the past few quarters have turned cautious since discretionary spend by customers is on the lower side, though new order wins continue to remain stable. Given the economic backdrop and further slowdown predicted by most economists for the US economy, it is prudent to expect continued cautiousness on IT management commentaries going ahead. A Bloomberg consensus expects weak earnings for Q2FY24 for the IT sector.
Do you think the inflation will drop to the target level of 4 percent and sustain there for a longer horizon?
The RBI projects to achieve its target of 4 percent inflation shortly on the back of stable fuel prices mandated by the government and the recent correction in fruits and vegetable prices. Both the RBI and the government have clearly articulated their stance to manage the supply side factors since they do not believe demand has been a major issue leading to higher prices.
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Given the circumstances, we would not doubt the projected inflation numbers and expect to be in the range guided by the RBI over the long term. Global Crude prices remains the key risk for any outlook on inflation.
Are you betting on consumer discretionary space given the two big events like ICC Cricket World Cup and the upcoming festive season?
At Tata Asset Management, we build our portfolios with a long-term perspective and do not get swayed by any short-term events. Of course, our experience does suggest some excitement due to events like the Cricket World cup or the festive season. We are quite optimistic on the general consumer discretionary space on account of our expectations of rising per capita GDP over the next five years and the changing demand patterns resultant from the higher per-capita income.
Do you expect more run-up in the midcap and smallcap segments, even though there are several stocks traded at record high or expensive valuations?
First, it is important to highlight earnings delivery for all segments of the market is expected to be reasonably healthy for the foreseeable future including midcap and smallcap segments. Over the past six months, the midcap and smallcap indices have run up 31.5 percent and 35.2 percent, whereas earnings growth estimates remains similar to six months prior and hence valuations have moved higher.
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While higher valuations does make us be a lot selective in terms of businesses for our portfolios our outlook on earnings delivery remains on the positive side and hence long term return potential remains healthy. For the short term, it would be prudent to assume some level of consolidation in this segment of the market.
Which are the key events to focus on by the market in rest of financial year?
Crude price is one the biggest risk factors for India and with war/conflict going on in some of the key producing or logistics regions like Russia-Ukraine, Israel-Palestine-Iran, this remains the key thing to watch out.
The US inflation numbers over the next few months will have a bearing on bond yields globally and can have repercussions on equity as an asset class. State elections in India between November 2023 and March 2024 may have some sentimental impact on Indian equity markets.
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Do you think the major correction if any seems unlikely till the general elections outcome?
At Tata Asset Management, we are focused on long-term wealth creation and as an investment house we believe in the investment philosophy of “Growth at reasonable price”. Inline with the investment philosophy we are more bottoms up stock picker. The good news is that there are always select businesses which are likely to deliver better earnings growth and are available at a reasonable price and we are working hard to identify such opportunities for our portfolios. We do not predict market levels.
Do you expect more volatility in the FII flow till the US bond yields and dollar index remain elevated?
More than FII flows, I would focus on the supply of paper given the higher valuations. Over the past 12 months, as per one analysis by JP Morgan analyst, India markets has seen $19 billion-plus supply of equity from PE/Promoters/QIP without too much from financials and government divestments. The pipeline of fresh supply remains on the higher side including new IPOs. This itself can lead to some consolidation in the markets.
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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