MC Interview| With 75 bps Fed rate hike and another one in near future, US growth will certainly be hit: Rajiv Shastri of NJ AMC

Rajiv Shastri, Director & Chief Executive Officer at NJ Asset Management

“Elevated oil and commodity prices along with supply disruptions make a recession possible in developed economies, which may have an impact in India, but the possibility of a recession in India is very remote,” Rajiv Shastri, Director and CEO, NJ Asset Management Company (AMC), said in an interview to Moneycontrol.

The US Federal Reserve in its June policy meeting raised the fed rate by 75 basis points (bps), the biggest increase since 1994. “With this rate hike and another one indicated in the near future, growth will certainly be hit in the United States,” Shastri said.

Edited excerpts:

Do you see inflation peaking in the coming months?

From a domestic standpoint, yes. If international commodity prices remain stable at the current level, which they are expected to do, then we may see some stability in domestic prices as well.

Related stories

Rajiv Shastri

Director & Chief Executive Officer|NJ Asset Management

• 
  Daily Voice | Equity market to scale record highs backed by robust economic growth: Rajiv Shastri of...
• 
  Daily Voice | Interest rates may go up, but don't expect much change in long-term G-Sec yields, says...
• 
  Gold can tame short term volatility in long term portfolio

Do you expect any chance of a major recession given oil prices remain at elevated levels?

Elevated oil and commodity prices along with supply disruptions make a recession possible in developed economies, which may have an impact in India. However, India has many domestic growth drivers that will continue to remain robust and generate a positive growth rate. As such, the possibility of a recession in India is very remote.

Also read - With Fed delivering a rate hike, it’s time to cherry pick quality stocks

What is your reading on the Federal Open Market Committee meeting conclusion? Can the consistent hikes in rates bring recession to the US markets?

The US economy is extremely susceptible to a recession at this point. With this rate hike and another one indicated in the near future, growth will certainly be hit. Whether it dips into negative territory or not is still open to many influences, but there is a high probability that it will.

Do you expect the Reserve Bank of India (RBI) to take the repo rate beyond 6 percent by the end of this calendar year, especially due to inflation concerns?

We don’t expect the repo rate to reach 6 percent. When the RBI pauses will depend largely on how international commodity prices evolve from this point. If they stabilise or start moderating, we may see a pause sooner rather than later.

Also read - High inflation likely to persist for another two quarters, says Rahul Bhuskute of Bharti AXA Life

We must be careful and not assume that just because the US Fed is behind the curve on inflation and is expected to increase rates sharply, the RBI will have to follow suit. The two economies are very differently positioned and while we expect very sharp increases in US rates, we don’t expect the same in India.

Do you see any chance of the market bottoming out soon?

Equity markets respond to a lot more than domestic interest rates. Indian equity markets may react to the manner in which international markets behave. And since there is some pain possible in the US, part of it may get transmitted to our market as well.

The Indian market is not cheap even by historical standards, so there is no natural protection that we have at this point.

Also read - Here are 19 stocks from top 5 PMS schemes that outperformed Nifty in May

Have you spotted any sector ideas that can be part of a portfolio in the current conditions?

We follow a rule-based active investing philosophy that selects stocks based on the presence of desirable attributes. This is a disciplined process that is sector and capitalisation agnostic. As such we do not have any sector preferences.

How can one protect a portfolio against recession as well as inflation concerns?

The Indian economy is in a long-term growth phase which makes the Indian equity markets a compelling long-term investment. We suggest investors remain exposed to equities in line with their risk profiles either through 100 percent equity funds or balanced advantage funds.

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.