Santosh Joseph, founder and managing partner of Refolio Investments and Germinate, looks at the ongoing consolidation as a healthy trend that throws up opportunities for those who have missed out on the flash rally in the market for the past 4-5 months.
From the September quarter earnings, one key takeaway is that there is a lot of reinvestment cycle, investment cycle and capex cycle happening across management commentaries from different sectors and industries, the financial services professional with over 20 years of experience in asset management, banking and insurance, shares in an interview to Moneycontrol.
Excerpts from the interaction:
Do you think the geopolitical tension will escalate and, eventually, trigger a deeper correction in the market?
The geopolitical crisis that we witness right now could deteriorate really soon because it's already on the boil and while the whole world is expecting it to be a very localised issue, one cannot really rule out the fact that this could turn into a full-blown global situation.
The situation at hand so far for the last 10 to 12 days of the war has been that it's been contained to a particular region and a particular geography in the market but one is hoping that it gets contained and resolved, but if not, there is a good likelihood that we may fear the worst to come into play.
Essentially it's not a good thing for the market because we were already under serious stress with rising oil prices and inflation being extremely stubborn and sticky and interest rates grinding up. Now this geopolitical tension adds to the stress that the global economy is facing right now and I think one would hope for a quick resolution and peace so that the markets can kind of stabilise.
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Do you see crude crossing $100 a barrel in the short term considering the global economic environment?
Crude at over $100 is not a possibility that one could write off very easily considering the subject of the present problem in the Middle East. We also have to acknowledge that the Middle East still contributes a significant portion of the oil output. And, if and when this situation spreads to the other Middle Eastern countries, there will be stress on the supply of the commodity, which is already on the rise, leading to a spurt in the oil prices to $100 or even slightly more than that.
So far the indications are that oil has been largely under control but you know these things don't take very long to flare up and one would be very watchful and wait to see how each day progresses and how the remaining nations react to the developments around us right now.
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Apart from geopolitical crisis, do you see any other risk emerging for the equity markets in the rest of the financial year?
Some of the risks for emerging markets are, the global interest rates scenario that one is facing, this will also lead to weakening of their currencies, reduced capital flow into emerging markets, people finding a safe haven in investing in the US treasuries right now.
So, it’s a well known fact that emerging markets get the benefit of the liquidity flows and also the benefit from the soft interest rate regimes around the world. So, there is going to be an Inherently tough situation at hand if the situations do not cool off and if oil prices shoot up with an already tight leash as far as interest rates and inflation are concerned globally.
Do you think the current consolidation in the market is a good buying opportunity?
The current consolidation is definitely healthy and presents a lot of opportunities for many people who have missed out on this flash rally we have had for the past 4-5 months in particular. I think the market cooling off or consolidating are all great opportunities for people to accumulate, participate and maybe even average out in the long run.
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But, this is a bigger opportunity for people who missed out since February, March to participate in equities. This consolidation or slow down in market rally is a welcome window for a lot of people who missed out in the last 6 months.
Are September quarter earnings announced so far in line with your expectations?
As far as our quarterly earnings are concerned, I think the few that have come out are good and it definitely shows that there is improvement in earnings and I reiterate that whatever earnings we see right now is on the back of full normal years in the post pandemic/ covid-19 world and it is very encouraging to see the actual growth in corporate earnings.
We have to keep in mind that though we have returned to normal, post Covid, in terms of business functioning, we have also returned to quite sticky inflation and slightly higher rates. Now these growth with higher rates and sticky inflation is still encouraging because eventually when the rates do soften and inflation cools off they will further lead to a boost in the earnings and improved performance in corporate earnings.
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What do you make out of the management commentaries after the quarterly earnings, for the second half of FY24?
Most management commentaries are, between positive and looking better, expecting a better times ahead. While I think one would notice that the key takeaways are that the opportunity is good, interest rates could be beneficial at lower levels and inflation is not as easy as what we thought it was. But having said that, the general consensus is that the mood is on a positive side.
One key takeaway is that there is a lot of reinvestment cycle, investment cycle and capex happening across the management commentaries from across sectors and industries. So though we have a very bleakish global macro outlook, the management commentaries from individual sectors and individual companies are not as bad as the global macro outlook and every sector seems to be finding good opportunities going forward.
Do you see a major slowdown in global growth, led by developed economies, next year?
With the current situation at hand, while we thought that the global growth was picking up and only interest rate and inflation was a big factor, right now, we have another whole new element that's just added up to the list of challenges for a resumption of global growth.
Now, I think we'll have to factor the whole Middle East scenario into this place. So this kind of puts brakes on the rebound that most of us were expecting on a global scale. Nonetheless, markets have the ability to weather these things.
However, one will have to be cautious to know the actual developments of this entire geopolitical tensions we're facing right now for a proper assessment of how soon and how good will the global growth return to normal.
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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