No Fed pivot until mid-2024 as global risks still present: Nilesh Shah, MD, Kotak AMC

Nilesh Shah advised investors to keep a neutral allocation to equity and keep some cash during the correction.

As the Federal Open Markets Committee hiked the interest rates by 25 basis points in the July meeting, Nilesh Shah, MD of Kotak Mahindra AMC said in a moneycontrol interview that the US Federal Reserve won’t reverse the rate hike in the next three quarters. He said, “earlier the US market expected the Fed to cut rates by mid-2023, now it has moved to mid-2024”.

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He added that we are part of a slowing global economy, and we need to observe how things evolves. The global banking system has faced turmoil earlier this year with the failure of banks like Silicon Valley Bank, First Republic Bank, and Credit Suisse in March 2023.

Shah warned that the IT sector will continue to receive hits in their revenue and there are concerns regarding growth in the sector. He said, “there are some dark clouds over IT sector in terms of growth”.

He also stressed the importance of energy in sustaining the India growth story. Amid the rapidly changing geopolitical scenario, “we have to ensure that energy is available to us at cheaper prices, and it is available as much as we need”, Shah said.

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He added that when the Fed pivots, “if we are going to get higher interest rates in US Dollar treasury, to that extent your expectation of return from emerging market equities including India will be higher, and that could result in rerating of our valuation as we trade at premium to others. So, there will be many global factors that will impact the markets. Which is why our advice right now is to keep some dry powder at this valuation of the market, as it is a fair value market”.

He advised investors to keep a neutral allocation to equity and keep some cash during the correction.