The first step to managing finances and investing in the stock market should be taking ownership of the task and one needs to define her goals and the time horizon for the investment, according to Shibani Sircar Kurian, Senior EVP and Head – Equity Research at Kotak Mahindra Asset Management Company.
Kurian believes that 2022 would be a year of bottom-up stock picking. “While the market may not be cheap on valuations, some stocks have corrected. We have a slight preference for large-caps over mid- and small-caps given the current valuations in each of the segments,” she shares during an interaction with Moneycontrol.
Excerpts from the interview:
On Mother’s Day, what is your great advice to women who are new to the stock market and what are the investment mantras you would want to share with them?
I believe that the first step to managing your finances and investing in the stock market would be to ‘take ownership’ of the task. Investing would mean differently for women in different roles and different stages of life. Hence, define your goals and time horizon for your investment. Finally, invest with confidence, don’t be afraid of equity investments, adopt the right asset allocation plan, and focus on a systematic and disciplined approach to investments.
Women can also explore investments in mutual funds which, in turn, will offer them exposure to various asset classes. Systematic investment plans (SIPs) can also help in building a corpus for one’s goals through fixed investment every month.
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The US Federal Reserve, as expected, raised rates by 50 bps, biggest hike in two decades. What are your thoughts and expectations considering the current global environment?
Markets the world over have been focused on the direction of the monetary policy moves by the US Federal Reserve and other central banks. Inflation trajectory, crude oil price movement as well as the continuation of the geopolitical tensions between Ukraine and Russia are some of the other key factors that we are monitoring closely.
Early in May 2022, the US Federal Reserve delivered 50 bps rate hike bringing the Fed Funds rate to close to 1 percent. This follows the 25 bps hike in the previous meeting. The Fed also outlined its plans for monthly balance sheet run-off starting June and then plans to further increase it after three months.
In the near term, it is likely that global uncertainty would continue resulting in some degree of market volatility. We believe that in the US, tight labour markets, supply bottlenecks arising from the Russia – Ukraine conflict and Covid-related lockdowns in China are keeping inflation elevated. Therefore, we do expect that the interest rate tightening cycle and monetary policy normalisation to continue in the US.
The RBI seems to be not in a position to stay behind the curve. Hence, do you think the RBI will keep raising rates till the inflation comes down to the target range of 4 percent (+/- 2 percent) on a sustainable basis?
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The focus has definitely shifted to inflation the world over and in India as well. The wholesale inflation in India rose to 14.55 percent in March 2022, marking the 12th consecutive double digit number. The country’s retail inflation, Consumer Price Index (CPI), rose to 6.95 percent in the month of March.
Monetary policy normalisation, along with elevated inflation, would likely keeps interest rates on an upward trajectory. The recent hike in the repo rate by the RBI seems to be aimed at anchoring inflation expectations. The RBI believes that the biggest contribution of macro-economic and financial stability will likely be through price stability.
The RBI said that its policy stance remains accommodative which, in our view, could imply that further rate hikes are likely, in order to move policy rates towards a more neutral policy zone.
From here on, it is therefore possible that RBI front loads the rate hikes with the policy focus clearly shifting towards managing inflation.
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Considering the unstoppable macro issues and raising interest rates by the central banks to combat rising inflation, how do you approach markets now?
Inflation and monetary policy normalisation is taking the centre stage both in India and around the world. Markets have somewhat corrected and valuations have also come off. However, India’s valuation premium relative to other emerging markets (EMs) is still higher than historical averages. Hence, while we are positive on the equity markets for the medium term, in the very near term, we would have to navigate some volatility. In the near term, commodity inflation would need to be watched out for in terms of the impact on corporate profitability. Monetary tightening along with elevated inflation would likely interest rates on an upward trajectory.
Corporate earnings in the near term could face margin headwinds even as the medium term outlook remains buoyant. With elevated commodity prices, we could see some margin headwinds especially in Q1 and Q2 of FY23 even as companies have started taking price hikes to offset higher input cost pressure. We, however, believe in the second half of FY23 some of the uncertainties around crude and commodities will likely start abating which could help bring back the focus towards the medium term trajectory of earnings growth.
Against this backdrop, we believe that this would be a year of bottom-up stock picking. While the market may not be cheap on valuations, some stock have corrected. We are looking at companies which are market leaders in their sectors and sub sectors, have strong balance sheet and cash flows, low leverage and where valuations are reasonable. We also have a slight preference of large caps over mid and small caps given the current valuations in each of the segments. We would, however, evaluate good quality mid and small cap names trading at reasonable valuations from a long term perspective of 3-5 years.
Do you expect a slowdown in credit growth for banks, if there are subsequent rate hikes by RBI in coming months? Is it the time to bet on banking and financial space?
Sectoral credit growth is showing some signs of improvement as the economy continues to open up with the latest growth being 10 percent on-year. While interest rates are likely to move up, remember the move is off a very low base level. Hence, it appears that credit offtake may not be hampered significantly in the early stages. However, the pace of rate increase will be factor which we will closely watch out for.
In the banking sector, we believe that large private sector banks are well placed and are likely to witness loan growth ahead of industry averages thereby continuing to gain market share. They have a strong low cost liability franchise which bodes well in a rising interest rate environment and also a higher chunk of floating rate loans. They are well capitalised and valuations appear reasonable.
What are the themes you like the most now, which have to be a part of portfolio?
Our portfolio approach is bottom up in nature. We are looking at companies which are market leaders in their sectors and sub sectors, have pricing power, strong balance sheet and cash flows, low leverage and where valuations are reasonable.
Some of the key themes that we are positive on include:
Industrials, manufacturing and infrastructure:
> Manufacturing growth continues in the public capex side with some signs of improvement in overall capacity utilisation,
> Manufacturing is also benefiting from the SS chain shift away from china
> Robust growth is being seen in Industrial consumables with the Tailwind of government focus on Aatmanirbhar Bharat.
Financials:
> Especially the large private sectors banks. These are gaining market share
> They have strong retail and low cost liability franchises which is important in a rising interest rate environment Credit costs are normalising
> They are well capitalized; well placed on technology front
Real estate and home building segments which we believe is a structural theme
We are approaching the pharma sector on a bottom up basis, focusing on stocks which have strong India business whereby growth is being helped by sharp recovery in acute therapies and non-Covid procedures picking up.
Any specific sector or segment that you want to suggest investors to stay away from right now?
We would be mindful of valuations at a sector or a stock level and would look to stay away from segments where valuations appear very rich. Further in a rising interest rate environment would be careful on companies with high leverage and focus on those with strong Balance sheets and cash flows.
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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