The benchmark indices have on many occasions come close to new highs recently but only to disappoint. Weekend Investing founder Alok Jain thinks that global recessionary fears are holding the market back.
Jain, who has spent more than 25 years in the market, doesn’t expect the Reserve Bank of India to change its policy stance when it meets in June for its bi-monthly review.
The RBI will wait for the fall quarter before cutting rates to avoid any shocks from the US. Once the US Fed starts to look less hawkish, the RBI will announce its first cut, smallcase manager Jain tells Moneycontrol in an interview. Edited excerpts:
Financials, excluding insurance, have reported good earnings growth in the March quarter of FY23. Will the performance continue?
India's financials are on a roll. The balance sheet has never been healthier and the commentary from all banking circles is positive. The same is reflected in stock prices of most financial companies and the Financial Nifty and the Bank Nifty indices that hover near their all-time highs.
Given the optimism of no further rate hikes in the near future on the back of tempering inflation, the likelihood is that the economy will step on the pedal in the second half of the year.
With elections coming up in 2024, there is also a likelihood of further push by the government for easier credit and overall loosening of financial conditions. Barring any unseen overseas financial shock, there is no reason for the current optimism to not continue unhindered this year.
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Which is the most worrying factor that is keeping the benchmark indices away from their record highs?
While the benchmark indices are a whisker away from all-time highs, the global recessionary fears are hanging like a sword on the market. With several banking failures and many restructurings in the West in the last few months, already there is increasing noise about a potentially messy hard landing, given that the debt-ceiling debate is still not cleared and once, and if it does, there may be a short-term liquidity squeeze in the system that will drive the yields even higher.
This one external headwind remains a major concern in the global markets.
We have seen strong FII inflows in May, so far. Do you expect them to continue or will the tide stem of there is a slowdown?
It seems that while the flows have restarted in the last few months, the flows have been fickle to the tune of USD strength. Recently, as the dollar index has started to rise again, the flows to emerging markets and to risk assets will again tend to ebb and can be an irritant in the current flow.
The dollar index is on the cusp of a huge fall below the 101 level and till that happens, the flows may remain low. Once and if that fall happens, we should expect a gush of money to India and that event will likely take us to newer highs.
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Have the March quarter corporate earnings met your expectations?
While we at Weekend Investing do not watch earnings and only watch price and volume behaviour, based on which our rule-based portfolios rebalance themselves, we have not witnessed many disappointments in the earnings so far. This may also be the fact that momentum investing usually invests in the strongest cohort of the market and the prices tend to run ahead of the news always.
We have always believed that earnings are analogous to rear-view mirror driving since they give you a snapshot of the period gone by and only let you extrapolate the future.
Do you see value in traditional pharma companies?
We find that the CNX pharma index is at the same level as it was in 2015 and we have had a lost decade on this sector at around 12,000 level. Recently, however, the index did manage to scale to 15,000 levels from where it has climbed down.
Once it shows strength to get back to near those levels and looks to go further up is when we will be able to conclude the rising trend in pharma stocks. Individual pharma stocks have not shown any coherent patterns and some of them while looking good... are yet to show any promising signs.
Is it time to look at domestic-focused sectors?
Yes, it is certainly time to look inwards and strengthen our self-sustainability, given that the world is de-globalising at a very rapid pace. The post covid recovery is not fully complete and the prospects of a lop sides K shaped recovery is still high on the mind. It is imperative that more and more focus be there on domestic restoration of the growth in the rural economy as well.
Do you expect the RBI to change its policy stance in the June policy meeting?
No, I don’t expect RBI to change its stance for the next few meetings. I think the RBI will wait for the fall quarter to avoid any shocks from the US and once the US policy meets start to look a bit less hawkish, the RBI will likely take the lead and announce their first cuts barring any unforeseen sudden recessionary cuts by the Fed.
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