Deepak Jasani is the Head of Retail Research at HDFC Securities
Apart from the usual growth-inflation trade off, Deepak Jasani, Head of Retail Research at HDFC Securities, says the Reserve Bank of India (RBI) needs to address rising bond yields, higher energy prices, persistent supply chain issues and global central banks tightening.
Most experts feel that the RBI could turn hawkish and raise reverse repo rate today. But, according to Jasani, the central bank may opt for a middle ground instead of raising rates and cutting liquidity.
Going by the performances in the third quarter, Jasani, who has a broad-based domain expertise in capital markets, suggests that one can look to accumulate select stocks in textiles space, engineering, sugar/ethanol, select metal and IT.
Excerpts from an interview with Moneycontrol:
Do you really think the oil prices will remain around $ 90 a barrel levels for a long period?
Crude oil prices have tailwinds as much as the geo-political issues across the world could disrupt supplies and revival in the world economy after COVID can result in higher demand. Minimal investment in oil discovery and extraction over the last few years has resulted in supply not being able to match demand even as the OPEC+ members stick to production cutbacks.
However, over the next few weeks, peak winter demand could end and in case the US-Iran nuclear deal happens, we could see oil from Iran entering supply. These could bring some sanity to the crude oil market after seeing a big uprun over the past few months. Crude oil prices may hence rise to $ 94-97 and then turn back from there over the next one-two months.
Do you expect the RBI to turn more hawkish in February’s policy meeting?
Also read – Explained | Accommodative, neutral and hawkish stances in RBI monetary policy
Apart from the usual growth-inflation trade off, the RBI Monetary Policy Committee (MPC) needs to address rising bond yields (due to higher borrowing), higher energy prices, persistent supply chain issues and global central banks tightening. Central banks across the globe have been looking to tighten the extremely accommodative monetary policy on the back of global inflationary upswing.
Although growth has picked up, inflation pressure still persists. While the RBI would like to turn hawkish in line with other central banks and due to the persistent inflation, growth considerations could prevent it from going the whole hog. Hence, it may opt for a middle ground instead of raising rates and cutting liquidity.
The market is 6.5 percent off from its highs now. Is it time to turn cautious considering the several events ahead?
Weak third-quarter corporate results have cooled off the enthusiasm of most market participants at a time when the markets are anyway facing relentless selling pressure from FPIs. While the markets are retracing the latest fall, it may face resistance at higher levels given the fact that interest rates are slated to rise across the globe reducing the lure of equities.
However, individual stocks may do well depending on their industry segments, their growth rates and adaptability and their base of top and bottomline. Across the board sustained rise in indices seem difficult for a few weeks from now.
What are your thoughts on December quarter earnings announced so far?
The results so far display topline growth that is more or less in line with estimates (aided by commodity price inflation), but margins have taken a hit in most industries for the same reason.
Passing over of higher costs has not happened to the full extent due to competition or other reasons. Among sectors, textiles, sugar/ethanol, engineering, PSU banks, footwear, select chemical, steel, media and IT stocks have done well.
Some sectors have been affected more by rising raw material prices (including consumer staples and durables, cement, auto, and metals) while some others are not directly impacted by rising prices (private banks, NBFCs and technology). Most banks have reported an improvement in asset quality, led by controlled slippages and healthy recovery and upgrades.
Nifty EPS target for FY22 will have to be cut after the completion of the results season and the extent of it will be known shortly.
Consumption, cement, auto, as was expected, saw margin pressure in Q3FY22 due to weakness in rural demand and persistent input cost pressures. Do you expect these sectors to see margin pressure in the March 2021 quarter numbers as well?
Input cost pressures continue to impact the cost structures of most companies even in the fourth quarter. Rural demand, which has been subdued so far, did not get a boost from the Union Budget and will now have to wait for the harvesting of Rabi crops for possible revival.
What are the sectors to pick after December quarter earnings?
Going by the performances in Q3, one can look to accumulate select stocks in textiles space (good tailwinds due to China+1 factor), engineering (capex thrust visible), sugar/ethanol (structural uptick in demand and healthy realisations), select metal and IT stocks.
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