MC Interview | Oil prices and Fed's policy will remain bigger driver of markets, says Bharti Sawant of Mirae Asset

Is the rising oil price a big threat to India in the context of the current policy environment? What are the supportive factors that are offsetting the impact of oil price rise?

The impact of oil price rise generally depends on what's driving it. If oil prices rise owing to improved global demand (2003-2008), then it's generally positive as it will be accompanied with strong exports. However, if they rise owing to supply shock, then it impacts policy environment adversely. This time around the oil price is being driven by supply rather than demand shock and hence will make policymaking more challenging.

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The supportive factors are that along with oil, even food prices have shot up. India is a net exporter of the same and hence to that extent it could have some positive rub-off on the rural economy which has been in distress for some time now. Important to note that the supply shocks tend to be for short period, and in the current context one can expect some respite as and when the Ukraine situation deescalates.

What should Indian investors do now given the risk off situation, higher oil prices and inflation concerns?

Clearly, sometimes the macro-economic context becomes uncertain and very dynamic. These are parts of typical market cycles. In such phases, managing risk becomes more important than generating returns. Thankfully, Indian economy is in the growth phase and will be one of the fastest growing economy in the world over the coming decade. Investors should use such periods of uncertainty and market corrections to reassess their portfolios for any risks and can add at lower levels, as per their risk profile.

Is there any possibility of significant downward revision in earnings estimates for FY23 after spike in commodity prices?

FY23 earnings downgrade, if any, will be function of longevity of higher commodity prices. To the extent possible, corporates will try to pass on the commodity prices and minimise the earnings impact. As you would appreciate, it's a dynamic situation and we will have to look at not only earnings, but also valuation and long term growth opportunity, outlook for which is positive.

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Is the relentless and aggressive selling by FIIs a bigger risk for India in the long term?

The answer depends on what is driving FII selling. The outflow is not due to India specific issues, but rather owing to adverse global macro situation. These happen every couple of years and hence, it's not necessarily a long term risk. But, yes in the near term it does have implications for balance of payments which tend to deteriorate.

Is it the right time to pick IT stocks given its robust orderbook or do you expect some more correction in IT space?

IT stocks have done exceptionally well last year primarily owing to the strong IT spends by US corporates. The correction in last three months is a part of the broader correction in expensive stocks (which typically happens when cost of capital goes up). However, some stocks in the space do look interesting, but with increased growth risks one would need to be selective in the space rather than have a broad-basket approach.

Do you see any impact of States elections results on market?

Yes, that could have some near term impact. However, I don't think it may materially alter market sentiments or government policy in the near term. I think, the bigger driver of markets will remain oil prices and Fed’s policy stance rather than necessarily state elections.

What are the portfolio tricks you want to suggest to newage investor?

In order to better mitigate risks, one can have a balanced portfolio of largecaps and midcaps basis 4 key factors – management, corporate governance, business outlook and cash flows. Mutual Funds are thus a better way of investing as it provides flexibility to invest across sectors along with professional expertise, diversification and convenience. Should the portfolio have dividend yield, growth or value is based on individual’s risk appetite and should be invested accordingly.

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