Santosh Joseph is the Founder and Managing Partner at Germinate Investor Service LLP.
The Russia-Ukraine war, various other geopolitical tensions across places, and fresh Covid outbreaks in some countries have kept people on the edge. From an investor perspective, it’s better to stay put and stick to your investment goals and, maybe, not focus too much on the short-term movements, suggests Santosh Joseph, Founder and Managing Partner at Germinate Investor Services LLP.
Sharing his views on the market during an interaction with Moneycontrol, Joseph says one of the key points to note down in the results season is the impact of inflation, and also to a great extent the bounce back in demand. The demand revival has also contributed to inflation but inflation itself is a sticky subject and it’s not going to go away soon.
The key takeaway from the earnings season is that the market is not out of the woods yet, says the ace finance professional. Excerpts from the interaction:
Volatility seems to be endless with geopolitical tensions, elevated oil prices and inflation concerns. What’s your advice to investors at this juncture?
The volatility that we are witnessing right now is quite high. Just about two years ago, oil went down to minus 20 and after that it was at $ 10-20 a barrel and from there to now it has witnessed a dramatic rise. Likewise with inflation.
With the onset of the pandemic, the whole world feared de-growth concerns and today it has shifted to inflation, this is the headline in every country. These things tend to get exaggerated on both sides. For instance, oil was at -20 but today it’s at $ 120+, from no growth to high inflation, and from massive stimulus to roll back of stimulus, and interest rates cuts to aggressive hikes – these are multiple causes that keep knocking the market. There is swift action from policy makers and by central bankers across the world to ease this inflationary pressure.
For an investor, the message is very simple. You have to pass through the storm. Just wait it out. Minus 10$ or 10$ oil could not sustain and even a $ 120-125 oil at some level will also cool off. Inflation will cool off too. Of course it takes time for things to return to normalcy.
However, the war, geopolitical tensions across so many nations, and Covid outbreaks in various countries still give people the jitters and fears. From an investor perspective it’s better to stay put and stick to your investment goals and maybe not focus too much on the short term movements.
Do you think the current market recovery, after hitting the recent bottom, is sustainable considering the current global environment?
The current market recovery, whatever we are seeing, it’s still not a conclusive or a definitive sign of a bounce back. These kinds of pull backs can happen even in the midst of a downtrend because markets just don’t crash one way. They fall, they recover a bit and then fall back again deeper. I am not saying this will fall again or that the bottom is done and from here on it will rise. These are heightened volatility periods.
Until and unless you have conclusive breakout on either the recent tops or bottom reversed, it’s very difficult to take a call. If you have an option to stay away from day to day activity, it’s ideal.
From an investor standpoint, some of these volatile moves may give great opportunities to either enter from a portfolio purpose, or even if you are not sure in certain investments, then these pullbacks and rises may be an opportunity to exit.
In recent corrections, have you spotted any themes that can be a part of the portfolio now and why?
Over the last few months of correction we’ve seen, a lot of excesses get corrected. In fact, most of it has been auto corrected from the massive valuations and premiums that some of these stocks and sectors we are quoting. When you look at them, maybe the IT industry comes to mind, how it rose up so fast and fell so fast.
Between the market capitalisations, the mid and the small caps seem to offer attractive values. Infact anymore deeper correction from here would push them all into value territory. So especially for people who missed out in the last 6 to 12 months to take a position or invest in opportunities, this is a great time to invest in the space. So rather than look for a needle in the haystack, today the haystack itself looks a lot more attractive and cheaper for one to consider investing.
What are your thoughts on the March quarter and full-year earnings season that ended earlier this week?
One of the key points to note down in the results season is the impact of inflation, and also to great extent the bounce back in demand. The bounce back in demand has also contributed to inflation but inflation itself is a sticky subject and it’s not going to go away soon.
You’ve seen many industries being able to pass the cost of inflation while many have not been able to. Therefore, they are not very successful to absorb or they have to take a hit on their margins. The key takeaway from the earnings season is that the market is still not out of the woods yet, inflation is a sticky subject and though demand is coming back inflation is not making it easy.
Do you expect any significant change in Nifty earnings estimates (FY23) if the inflation concerns persist for long?
After one or two tough years, all of us are optimistically looking for good earnings growth in FY23. Inflation can be a spoil sport. In some cases, it can be absorbed or passed on, in many cases it actually compresses the earnings. We have to watch for inflation.
We cannot say that it won’t have an impact. But the general trend is that people are hoping for better earnings outcome. The industries that are able to pass on the inflationary effect will more or less do better.
Inflation is the hot topic this year. So do you think the RBI will do faster policy tightening in rest of financial year FY23?
Inflation is a hot subject not only in India but across the world, and central bankers across the world are swinging into action to keep inflation under control because it has to be tamed at the right time with the right measures.
RBI also did their bit even before scheduled meetings to express their intention about keeping the inflation rates under check and the recent RBI Governor also made a statement saying that it’s a no brainer to raise interest rates to check and keep inflation under control.
The US dollar index corrected 3 percent after hitting 20-year high earlier in May and also US bond yields gyrating in a range below 3 percent for couple of weeks now. What are your thoughts and what does it indicate?
The dollar index and even the volatility that we are seeing with the US Treasuries is actually affecting the flow of money. As and when people start reinvesting in US treasuries, globally the flow of money will get impacted. Especially for an emerging market like India, the dollar index going very high is negative because there are a lot of outflows.
We are an attractive destination at a soft dollar index, and also with the rise in interest rates in the US means that a lot of large monies and the liquidity flow which was so easily present in the last two years may be curtailed to a certain extent. A reversal in these will mean flows could come back to our markets.
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