Kotak Mahindra Life Insurance Company remains constructive on financials and IT sectors in the medium term, Radhavi Desphande, President & Chief Investment Officer says in an interview with Moneycontrol.
Financials have the tailwind of a healthy balance sheet, strong credit growth and lower credit cost with valuations in line with long-term averages, she says with more than 26 years of experience in the capital markets.
On the Federal Reserve meeting scheduled in May, Radhavi Desphande says she sees FED approaching a near end to the hiking cycle with one last hike before an extended pause.
Q: What is your preference among financials and IT?
We remain constructive on both the sectors in the medium term. Financials have tailwind of a healthy balance sheet, strong credit growth and lower credit cost with valuations in line with long-term averages.
While companies in the IT sector have reported a steady increase in both order book and earnings in spite of turbulence in the external environment, valuations have become reasonable post-stock price correction seen over the last year, making both sectors an attractive entry point to long-term investors.
Q: What is your take on the provisional numbers for Q4FY23 presented by corporates?
During the quarter, there was apprehension of a slowdown in consumption in particular and the economy in general. Financials have reported a strong trend in credit growth along with buoyancy in deposit mobilisation, which indicates good activity in the economy.
Consumer companies have reported mixed trends with strong growth in premium consumption items like jewellery and food category and slowdown in other mass consumption items like oil. Hence there are no clear confirmed signs of slowdown in the economy.
Q: Do you expect the Federal Reserve to end the rate hike cycle with last 25 bps hike in May?
The generally stronger economic data along with sticky high inflation in major areas has resulted in US Federal Reserve undertaking aggressive rate hikes over last 1 year. However going forward the FED will need to see the impact of these hikes on the economy along with, the recent banking developments that have resulted in tighter credit conditions.
Hence we see FED approaching a near end to the hiking cycle with one last hike before an extended pause.
Q: Do you think the current indicators suggest that equity markets have not yet priced in a recession?
Over the last 18 months, markets have consolidated and valuations are in line with the long-term averages. The consensus is assuming mid-teen growth in earnings for the next 2 years.
In a recessionary scenario, there can be a disappointment on the growth front. Also, in the past, valuations may also tend to correct below the long-term averages in a recessionary scenario.
Also read: Interview | Banking is an interesting sector to bet on from here on, says Santosh Pandey of Nuvama
Q: Do you expect core inflation to stay sticky for some more months?
There is still some lagged pass-through of input costs that is likely to keep core inflation sticky, same was acknowledged by Reserve Bank of India in the April Monetary Policy Statement.
However, going forward the underlying momentum in the core is likely to be lower on the back of mixed growth signals in the economy and the headline inching lower due to the base effect.
Q: Have you spotted any theme that has to be in a portfolio now for significant returns in the coming couple of years?
In the last few years, the government has given a lot of focus to boost investment by giving larger allocation to infrastructure in the budget, announcement of production linked incentive scheme and economic reforms like reduction in corporate tax rate and introduction of GST.
We believe that the economy will see the benefit of these initiatives and investment themes can offer attractive returns in the next few years. Sectors like capital goods and financials should benefit from this theme.
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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