"A rebound in banking and financial services, and IT sectors and the largecaps bouncing back should be a rewarding journey for the markets for the next year (Samvat 2080) or so," Santosh Joseph, Founder and Managing Partner of Refolio Investments and Germinate says in an interview to Moneycontrol.
Further, with General elections being between this Diwali and the next Diwali, "we've seen that usually around the elections, six months before and six months after, markets tend to be quite upbeat and therefore there's a good reason to believe that next year should be better than the past one year," he says.
On the general elections 2024, the financial services professional, who possesses over 20 years experience in asset management, banking and insurance, says in the given circumstance and current scenario, it is more or less likely that the present government will have a higher chance at winning peoples mandate to form the Government.
Q: Do you expect the equity market to provide much better returns by next Diwali (Samvat 2080) after 10 percent run from previous Diwali?
Markets are looking like they will reward investors over the next year or so. The 2023 calendar year so far has largely been a year where the returns have come in the past six to eight months. Within that largecaps have been silent and literally non-participative whereas mid, small cap and the broader markets are the one that is giving all the returns.
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Thus, going forward, just the fact that largecaps have not contributed this far and noticing a significant kind of lag from large sectors like banking and financial services and even IT to some extent, a rebound in these kind of sectors and the largecaps bouncing back should be a rewarding journey for the markets for the next year or so.
With General elections being between this Diwali and the next Diwali, we've seen that usually around the elections, six months before and six months after, markets tend to be quite upbeat and therefore there's a good reason to believe that next year should be better than the past one year.
Q: Is the Federal Reserve done with the interest rate hike cycle given the economic scorecard?
The activity of the Federal Reserve on the rate front is really becoming a tough call. A pause right now cannot be interpreted in any way till we see further action because we have noticed this in the past too that a pause does not signal either a stoppage or they're done with it. It could pause for some more time.
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However, the macro data that the Federal Reserve will be observing will be the most critical aspect in terms of how one reads Fed's action. They are also struggling with this extremely sticky inflation and what's not helping is the massive amount of pressure from the geopolitical tensions currently present in the world.
Thus it is suggested to not try and be adventurous by taking a binary call on Fed's Decisions. The best way to navigate this is not to jump towards an outcome but take data and action as it comes.
Q: Do you think the current government at the Centre will continue after general elections 2024 or is there any impact of States elections?
Currently the present government seems to be having a great opportunity to come back to form the government at the center. We have seen some state elections surprise us.
Having said that we have to keep in mind that the voter is very clear on who they want in the center and who they want in the state. And in the given circumstance and current scenario, it is more or less likely that the present government will have a higher chance at winning peoples mandate to form the Government.
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Q: Do you expect the FII flow to be very strong once the Fed declares the interest rate hike cycle is done?
It's natural to think that once a Fed is done with the interest rate cycle and at some level we see a pause or a declining trend on the interest rate cycle that India will and could benefit from a massive FII flow.
Not to say that we don't already have, we already have relatively decent inflow because when one analyzes the data of the past one year, China is on the withdrawal side where a lot of FII money is reversing and flowing out of China and we all have heard the China+1 story where India could benefit.
Having a much stronger economy, much more visible and stable demand in place from a post-Covid world, India could benefit significantly and a softening interest rate regime globally could just add an extra kicker to the FII flows that one could expect in India.
Q: Do you think the equity market is least bothered about the West Asia crisis? Hence, will the oil prices be range bound?
The crisis in the Middle East has made the global markets even more volatile, Market is trying to adjust to this Geopolitical issue, it’s flip-flopped from being a regular middle eastern conflict to sometimes worrying to spill over a larger context. So we have to put this into perspective, the world markets were already in a tight situation with high inflation and high interest rate scenarios.
With this Middle East crisis people are finding it really hard to pinpoint the effect it’ll have on both energy, commodities as well as equity markets. With the recent history of the Russia-Ukraine crisis, investors are trying to figure out how Equity markets and currencies around the world will be, to potentially avoid any knee jerk reactions.
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The crisis cannot be ignored, but investors are trying to assess this with a measured approach to investing and caution. Oil prices are going to remain at the center of these escalations or solutions.
Q: Given the consistent domestic flow, do you think the equity markets valuations remain elevated going ahead despite absence of FII support?
The domestic flows which are now proven to be very consistent over the last many months and now turning into years is actually what has kept the market alot more resilient and buoyant. Maybe 5-10 years ago we were solely dependent on just the FII activity. If the FII flows came in we had a good rally, if the FII flows went out, we had a sell off in the market, but this time even though FIIs have been less bullish in investing and even actually selling.
We do have a scenario where the domestic flows have actually given a lot of support to the market and therefore even the valuations have remained at these levels thanks to this big support that comes from the massive flows of domestic, both on the retail side and even the domestic institutional investors.
Q: You don't talk about stocks, but do you think HDFC Bank is definitely the bank to own with the long term perspective?
We still like to refrain from talking about stocks but when one looks at HDFC Bank clearly their numbers are not as bad as how the stock price is reflecting, In fact the big risk they had with leadership change and the big activity of HDFC Bank and HDFC Limited merger is done.
You already have stable leadership in place and the merger activity being smooth. Sometimes great companies which are great businesses also go through months and years of no share price activity, but that doesn’t mean that the business is not good. When they catch up, they catch up really fast and ferociously.
Q: Is it the best time to have stocks from the EMS (electronics manufacturing services) industry in the portfolio given the expected growth potential in coming years?
The electronics and manufacturing services industry is getting a massive boost from various quarters. One is the whole China +1 story, second is the Atma Nirbar or Make in India push that the government is giving, not to forget the various PLI incentives and many people wanting to look at India as a very important hub and source for their electronic Manufacturing requirements.
And lastly, many states wanting to, very proactively, invite these companies to generate employment as well as for the local GDPs are taking up these proactively with a lot of SOPs and policy changes.
All these initiatives make our Indian electronic manufacturing services look very attractive and hot in the medium to long term. This part of the economy which is still very small is fast emerging and growing.
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.
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