Ram Kalyan Medury of Jama Wealth
There’s no stagflation for the Indian economy on the cards, believes Ram Kalyan Medury, Founder and CEO of Jama Wealth, in view of the momentum of economic activities in the country.
In view of the earnings results for the fourth quarter and financial year 2021-22, he rules out the thought that India is at the beginning of an earnings downgrade cycle. “Many of the companies that we track in our two main equity advisory portfolios have posted good results. Topline growth has been satisfactory, although there has been pressure on margins due to increase in input costs, largely owing to inflation and the Ukraine Russia Standoff,” he says during an interview with Moneycontrol.
Excerpts from the interaction:
How do you protect your portfolio if there is any kind of stagflation or recession kind of environment appearing? What are the pockets to look at to strengthen your portfolio?
Investment in equities is like a roller-coaster ride. We navigate the lows by having an appropriate asset allocation across all our investments covering our liquidity, safety and growth requirements. Having a proven investment philosophy is important. It helps us steer through the downturns. Having consciously chosen the stocks, there is a good case for holding on to them without panicking. We would focus on companies with low debt given that the current selling is largely on account of reversal in interest rates.
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Do you think India is entering into stagflation (slowing growth and higher inflation) kind of environment now?
Our view is that India is among the fastest growing economies in the world. Every day and anecdotally, we see a lot of economic activity around us. There is an increase in construction activity. Big, fat weddings are back. People are spending their vacations. Air travel is going back to pre-Covid levels of 1.1-crore-plus monthly passengers.
Government expenditure, particularly capital expenditure, is up and driving growth. This is likely to continue until private investment picks up. We are relatively better placed in respect of various macro parameters. In short, our view is that we are not heading towards stagflation.
After seeing the biggest correction among sectors this year, do you think IT space is looking attractive now considering the current macro environment?
IT will continue to do well in the long run because there is no alternative to technology in a post-Covid world. Corporates and employees are both trying to strike a balance between work from home and get back to office. This will take some time.
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We see that operating costs may increase in the short term, but over the medium term the employee costs and attrition are both stabilising. Also, a relatively weaker rupee augurs well for the IT sector. We advise holding on to a reasonable allocation to the IT sector.
What is the message you expect from the monetary policy of RBI today?
We have already seen a 40 bps increase in key rates. With the recent cut in excise duty resulting in lower oil prices, inflation is likely to be relatively lower. It is clear that RBI has chosen to prioritise inflation over growth, but is committed to ensuring growth does not suffer. We expect policy rates to remain unchanged, as the RBI can increase rates any time later if required.
Despite heavy selling by FIIs since October last year, the price correction is minimum. What is the reason behind minimum price correction in same period?
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India continues to be an attractive investment destination with relatively better macros. Valuations have come down to attractive levels. The Indian investor continues to have faith in equities as an asset class, and is continuing their SIPs, which is acting as a support level to the market.
With rising interest rates resulting in negative returns on debt funds, gold prices not moving up as one would expect during war time, and real estate requiring huge capital commitment, there is no single asset class that would pull all the money going into equity. Having said that, we will see turbulence, as further fall in market indices can create nervousness among new investors, or those without much margin of safety.
After Q4 earnings, do you think India is at the beginning of an earnings downgrade cycle?
We do not believe we are at the beginning of the earnings downgrade cycle. Many of the companies that we track in our two main equity advisory portfolios have posted good results. Topline growth has been satisfactory, although there has been pressure on margins due to increase in input costs, largely owing to inflation and the Ukraine-Russia standoff.
Companies with high debt can face pressure on account of rising interest rates. That still leaves a lot of companies in our consideration set for long term wealth creation via equities.
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