Arun Chulani, co-founder of First Water Capital Fund, believes that India is in a structural up-market for the long term.
"There are business cycles and there are market cycles, and it seems that black swans are no longer unexpected. If something major doesn't happen in a year, then it will be surprising," he says in an interview to Moneycontrol.
After recent turmoil in the US banking space, he believes that there will be an impact, because the BFSI sector contributes around 40 percent of the Indian IT sector revenues.
"The BFSI sector is likely to face cost pressure not only from the macro slowdown but also from within the banking sector. This will likely lead to contract re-negotiations as they look to trim costs," says Chulani, a chartered accountant and a seasoned investment professional with over 20 years of experience.
Excerpts from the interview:
Do you think India is unlikely to see a roaring bull market?
I believe that India is in a structural up-market for the long term. There are business cycles and there are market cycles, and it seems that black swans are no longer unexpected. If something major doesn't happen in a year, then it will be surprising.
But I believe that India will get its day in the sun.
These are some great strides by the nation and while we may experience turbulence from time to time, I am hopeful that India’s day will come.
With the banking crisis in the US, do you think the Federal Reserve is unlikely to be aggressive in rate hikes going ahead? Will it be a 50 bps or 25 bps hike in the fed funds rate in the latter part of March?
The Fed has some smart people tasked with the delicate balance of maintaining growth, while keeping inflation at bay. They can see what is going on and it is up to them to adjust accordingly and hopefully in a moderate fashion. Second-guessing what they will do is not something that I typically try.
Do you think India's GDP numbers may surprise on the downside in the next financial year?
Again, with all the possible errors that are likely to occur when calculating these numbers, I don't think one should be that concerned if there are some minor adjustments. I am personally looking at the long-term growth rate of the country, and as long as the trend is in the right direction, I am ok with that. If there is a structural slow-down, then that would be more concerning.
Most experts believe 2023 will be a difficult year for the market. Do you agree?
Well, there are certainly a lot of clouds in the sky – conflict, inflation, a banking crisis, quantitative tightening and many more. But if any of these turns, it will bring some good cheer. In the midst of a cycle, it is easy to forget that the wheel of fortune never stands still and the good times never last but hopefully neither do the bad times.
Is the US banking crisis over now?
It’s too early to say, but I am hopeful that it can be contained. Though looking at the European banks, I don't think it's restricted to the US. We have been through similar circumstances globally and even in India during 2018.
Every time it’s billed as the Lehman moment, some pundit says we are heading for a 1930s-like Great Depression. I think it is better to keep a moderate and cool head. While there are so many dynamics out there, and gaining people's confidence back is never easy, one must keep a sense of optimism that it will work out.
Is it a time to enter the market in a big way? What is the best investment strategy in the current situation?
The market seems to have corrected quite a bit, with good-valued opportunities showing up. It depends on several factors, including one’s risk appetite, liquidity, discipline, and the ability to stomach the volatility. But how I am approaching it is by averaging into the market. That way, even if the market falls further, there is the next tranche to average my loss and time in the market.
It is usually better to go with a good fund manager who has a long-term track record.
I love a quote by David Rubenstein of Carlyle Group which goes like, “Don’t think that you are going to become Warren Buffett”. It is probably better to do your day job and let the fund manager do theirs.
Do you think the tech spend cuts in the BFSI segment will be a big negative for IT stocks?
I do believe that there will be an impact, because the BFSI sector contributes around 40 percent of the Indian IT sector revenues. All this uncertainty will likely delay projects as the system attempts to roll itself back upright.
Plus, the BFSI sector is likely to face cost pressure not only from the macro slowdown but also now within the banking sector. This will likely lead to contract re-negotiations as they look to trim costs.
But of course, on the flip side, it may lead to further adoption of AI (artificial intelligence) and other cost-cutting techniques by IT firms, further outsourcing by the BFSI sector as it looks to develop a leaner structure and maybe in the long-term more investment into better tech infra to ensure a more robust industry with better availability of MI (machine intelligence).
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