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

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.

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.

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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.

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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.

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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.

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