Vivek Sharma of Gulaq
Inflation has definitely not peaked out. We might remain in a high inflation regime for much longer, feels Vivek Sharma, Director (Strategy) and Head of Investments at Gulaq, a part of Estee Advisors.
Sharma said the point of concern is the possibility of a hard landing of US economy because of the rising interest rates. Higher rates in-turn lead to FIIs pulling out money invested in India at increasing pace. This will have higher impact on stock markets than on economy. So the chances of a bear market are higher than that of a recession, said in an interview to Moneycontrol.
Edited excerpts:
Do you foresee a recession going ahead given the elevated oil prices?
Elevated oil prices is definitely a cause of concern for Indian economy. Oil comprises about 20 percent of our import bill, so this directly impacts our current account deficit and puts pressure on rupee.
But the bigger concern is the possibility of a hard landing of US economy because of the rising interest rates. US Fed raised the Fed Funds rate by 75 bps in the June FOMC meet and another 75bps hike is being priced in for July. Currently, the short-term rates are in a range of 0.75 to 1 percent.
This will in-turn lead to FIIs pulling out money invested in India at increasing pace. This will have higher impact on stock markets than on economy. So the chances of a bear market are higher than that of a recession.
In India, do you expect a pause by RBI in the next policy meeting?
We have to realise that the central banks have only so much control over the factors that are creating inflation. Roughly 1/3rd of the inflation can be controlled by central banks by raising rates but then there are other factors like Russia-Ukraine war and the recent Covid-related factors, shutdowns in China – nobody knows how they will play out.
Do you think inflation has peaked out now?
Definitely not. We might be in a high inflation regime for much longer as this is being driven by deglobalization trend. But as I said, few big factors are there which can move the markets either way in short term.
We, in India, have seen this kind of inflation in last 10 years, so we are relatively well-placed. In US, the inflation has never been this high in last 4 decades.
Have you spotted any sector ideas that can be a part of a portfolio in the current market conditions?
Commodity producers always do well in high inflation regimes. During recession, sectors catering to essential goods do well. Other usual suspects like consumer staples, energy, healthcare, industrials and utilities are likely to do well on relative basis.
How can one make his/her portfolio recession-proof and inflation-proof?
There is no easy answer to this. Obviously, there are certain sectors which do well on a relative basis in inflationary times and recessions, and our models are increasingly giving these sectors more exposure in our portfolios. One needs to take risks to generate returns. By the time dust settles and there is clarity, the opportunity would no longer be there.
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