Shiv Chanani is the Head of Research at Elara Securities India.
Crude oil prices have hit a seven-year high of $ 94 a barrel. Shiv Chanani, Head of Research at Elara Securities India, says the current movement in oil prices can be attributed to a combination of factors like growth recovery as well as geo-political issues. “Historically, geo-political premium has not lasted for an elongated period.”
On the Monetary Policy Committee (MPC) meeting scheduled to be held between February 8-10, he expects the MPC to remain growth supportive and maintain its accommodative stance. “Even though imported inflation (such as high crude oil prices) remains a concern, we expect the MPC to hold on to policy rates,” says Chanani, who has over 20 years of experience in Equity Research and Fund Management.
We are towards the end of the December quarter earnings season. How do you read the quarterly earnings announced so far?
The earnings season has been fairly in line with expectations so far. Large sectors like Technology services and Banking have fared well. Consumption-oriented companies have witnessed lower margins owing to input price pressure, but we believe that the worst is behind these companies both from the demand and margin perspective. Aggregate consensus earnings estimates largely remain unchanged for FY23.
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Oil prices are back above $ 90 a barrel now, and if they hit $ 100 a barrel in the near term, will it dampen market sentiment? Should one be worried about such a correction?
The current move in oil prices can be attributed to a combination of factors like growth recovery as well as geo-political issues. Historically, a geo-political premium has not lasted for an elongated period of time. Furthermore, sustained high crude oil prices will accelerate the energy transition movement that the world is currently witnessing.
What are your broad expectations from the RBI policy meeting scheduled next week? This is the first meeting after the Union Budget…
We expect the Monetary Policy Committee (MPC) to remain growth supportive and maintain its accommodative stance. Even though imported inflation (such as high crude oil prices) remains a concern, we expect the MPC to hold on to policy rates.
Also read – Policy meeting to be challenging for RBI given that oil prices are above $ 90 a barrel, says Abhay Agarwal of Piper Serica
Is this the right time to invest in infrastructure, construction, capital goods, banks and realty stocks, especially after the Union Budget, which aims to increase FY23 capex by 35 percent to Rs 7.5 lakh crore?
The Budget emphasises the need to accelerate public expenditure in order to “crowd in” private investments. At the same time, it also lays the foundation for capacity building.
We believe this “investment-oriented approach would help in creating a multiplier impact in the economy, leading to revival in private capex as well. Consequently, growth prospects for capex related sectors are certainly very strong.
Do you think the budget will help in consumption revival given the high unemployment and rural distress in the country?
We believe that the multiplier effect of higher public expenditure can create a virtuous cycle of higher employment, higher consumption, higher capacity utilisation and higher private capex.
FIIs have already sold more than Rs 1.4 lakh crore worth of Indian equities since October 2021. What are the decisions by the Fed that could hamper FII flows in emerging markets, including India?
A tighter liquidity scenario should have an impact on stocks with high valuations, where profitability is significantly back-ended. Given the fact that such stocks do not comprise a meaningful part of the listed space for emerging markets like India, we expect the impact to be limited. Even though it’s early days, Emerging Markets have outperformed Developed Markets in CY22 so far.
What are the themes that a portfolio should consider with 1-2 years’ perspective?
We prefer domestic recovery themes as we believe both consumption and investment will recover. Hence, we prefer to be in sectors like Consumer Discretionary, Consumer staples, Industrials and Financials.
Which are three things you liked in Union Budget 2022?
We liked the balancing act of addressing near-term concerns through accelerated public capital expenditure, while at the same time laying a foundation to build future capacity. We believe that the Gati Shakti framework of close coordination between various ministries will help in faster and more efficient project execution. The budget also outlined the Digital First strategy in building the future India.
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