Nimish Shah, Chief Investment Officer – listed investments at Waterfield Advisors
FIIs’ return to emerging markets would be largely dependent on interest rate movements in the USA, said Nimish Shah – Chief Investment Officer, Listed Investments at Waterfield Advisors.
“We believe that in the medium term as the outlook on rate stabilises and global growth recovery continues, equity allocation by FIIs would resume.
Shah has close to 25 years of experience in the capital markets across diverse asset classes and platforms.
“We would advise Buy on Dips as stocks markets would gyrate to the geopolitical developments. Growth in India would not be impacted and foreign flows to India could increase with allocations to Russia being marginalised.”
Here are the edited excerpts from that interview with Moneycontrol’s SUnl Shankar Matkar:
Do you see any impact on global growth following sanctions on Russia?
Russia’s share of the global GDP is less than 3 percent. If Russia goes into a recession due to sanctions then the impact on global growth may not be meaningful. Primary exports of Russia are Crude Oil and Natural Gas. The latter is used by European Union (EU) countries for powering manufacturing and mobility. Apart from these, both Russia and Ukraine export food grains like Wheat to many countries and rise in prices of food grains due to restricted supply can impact inflation.
Also read – War in Ukraine to have ‘severe impact’ on global economy: IMF
What could be the impact of spike in commodity prices amid Ukraine-Russia war, on corporate earnings in Q4FY22?
Impact of higher crude prices could lower corporate profitability as production and transport costs would rise. However, this would not materially impact the absolute growth as increase in input costs will slowly be passed on to consumers if the demand remains firm.
How should one approach the market that deals with Ukraine-Russia crisis on one side and inflation pressure on other side?
We would advise Buy on Dips as stocks markets would gyrate to the geo-political developments. Growth in India would not be impacted and foreign flows to India could increase with allocations to Russia being marginalised.
Inflation in India is relatively insulated (apart from crude oil price increases) and is more dependent on local factors like demand and monsoons.
Also read – Russia Ukraine conflict: The case for atmanirbharta
Is there any possibility of another 10 odd percent market correction in coming weeks, even after 13 percent fall record highs?
The current action and posturing by Russia surely suggest that all is not over. We could see continued volatility in markets, but it is difficult to predict the bottom. A positive statement from Russia could reverse sentiments quickly while continuation of Russia’s aggressive stance could surely lead to greater volatility. We would suggest to be intuitive while adding new exposures while would advise against exiting good quality investments.
One of the factors that capped the market upside was FII outflow worth more than Rs 2 lakh crore since October 2021. Is there any possibility of FIIs returning to India in short to medium term?
Indian market was already trading at high premiums to other emerging markets. So, apart from valuations, the interest rate movement played an important role in FII outflows. And, while FIIs have withdrawn around Rs 1.05 lakh crore in CY2022, domestic investors have provided a good alternative by pumping in Rs 76,612 crore. Even in the first few days of March, while FIIs have withdrawn Rs 18,615 crore, DIIs have invested Rs 12,600 crore.
FIIs’ return to emerging markets would be largely dependent on interest rate movements in the USA. We believe that in the medium term as the outlook on rate stabilises and global growth recovery continues, equity allocation by FIIs would resume.
Is it the time to increase exposure to defensive stocks in a portfolio?
We would advise investments in good quality stocks that show long-term growth capabilities and are market leaders in their segment. These stocks can be from any sector type – whether defensive or sensitive. A good correction in such stocks should be an opportunity to buy-in.
Where do you want to allocate your money as the market already corrected nearly 13 percent from record highs – India story or new age segment that corrected sharply?
New age stocks have surely corrected, but their business models remain to be fully tested to understand valuations. We would wait for the newly listed businesses to report numbers for a few quarters to be able to understand their businesses and strategies better before we start small allocations. Also, with the new SEBI restrictions on leverage IPO applications, there would be rationalisation on over-subscriptions and hence on run-away listing gains.
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