Rahul Singh is the CIO-Equities at Tata Mutual Fund.
Seven-year high oil prices at $ 93 a barrel is a cause for concern for the market across geographies. A further spike in crude may be negative for the interest rates and hence equity valuations, believes Rahul Singh, CIO-Equities at Tata Mutual Fund.
Talking on the market dynamics, the seasoned investment professional shares with Moneycontrol that unabated selling by FIIs has dampened the sentiment with the net sold value escalating beyond Rs 1.4 lakh crore since October 2021.
Any surprise in terms of the balance sheet contraction by the Federal Reserve either in terms of quantum or timing can be a further hindrance to FII flows, according to him. “This might be offset somewhat by the robust growth in Indian corporate earnings expected in FY23 which might stem or reverse the FII flows at some point of time during 2022,” he says.
Excerpts from the interaction:
We are towards the end of the December quarter earnings season. How do you read the results declared so far?
The quarterly results have been a mixed but by and large the upgrades have balanced the downgrades. Banks and IT have led the outperformance, while part of the consumer sector has seen a pressure on margins because of higher input costs and slower recovery in rural markets.
Click Here To Read All Earnings Related News
A few sectors come to focus after the 35 percent hike in capex to Rs 7.5 lakh crore declared in the Union Budget. These are infrastructure, construction, capital goods, banks and realty. Do you think it is the right time to invest in these sectors?
The government capex outlay in the Budget was increased in the 2021 Budget too and this budget merely sustained the momentum even though the actual growth rate is lower at around 10 percent on a like-to-like basis. In addition, the private/corporate sector capex is also picking up in traditional sectors like cement and steel as well as emerging themes of automation, renewables and PLI (production-linked incentive).
Click Here To Read All Budget Related News
Real estate is recovering after a lacklustre performance over the last decade as low rates and affordability have come together. So, there is a recovery in these cyclical sectors which was missing in the last decade and the Union Budget has given that another nudge.
Do you think the Budget will help in consumption revival given the high unemployment and rural distress in the country?
Job creation is a long-term benefit from the Budget’s growth push, private sector capex, PLI and revival in real estate construction. We believe that the present economic recovery which is led by investment cycle and not through welfare schemes is in the right direction in that respect. However, there are no short-term solution and this path if executed well and participated by the private sector can be positive for job creation in the long run.
FIIs have sold more than Rs 1.4 lakh crore worth of Indian equities over the last few months. What decisions by the Fed, do you think, might hinder FII flow into emerging markets like India?
We believe that the present rate hike guidance by the Fed adequately captures the actions which the Fed is likely to take in 2022-23. In addition, any surprise in terms of the balance sheet contraction by the Fed (expected to commence in Q422) either in terms of quantum or timing can be a further hindrance to FII flows. This might be offset somewhat by the robust growth in Indian corporate earnings expected in FY23 which might stem or reverse the FII flows at some point of time in 2022.
What are the themes that one should consider for the portfolio with a 1-2-year perspective?
One should consider banking and infrastructure due to the ongoing cyclical recovery.
What are the three things you liked as well as disliked the most from Union Budget 2022?
Liked the push towards capex, no major changes in taxation and avoiding welfare schemes was biggest positives. Negatives were in the form of lack of any structural reform initiatives like the pending Electricity Act as well as slowdown in disinvestment targets.
Oil prices are back above $ 90 a barrel. If it hits $ 100 a barrel in near term, will it dampen the market sentiment? Do you think one should be worried due to that correction?
India is dependent on crude imports and hence any spike impacts the current account as well as the fiscal deficit, besides adding inflationary pressures. The rates cycle has reversed globally and in India so any further spike in crude can be negative for interest rates and hence equity valuations.
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.
