Daily Voice | This strategy head believes commodity prices, wary US corporates may push Fed to avert aggressive stand

Market Outlook
Gaurav Dua is the Senior VP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas

Gaurav Dua is the Senior VP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas

At this point in time, it is best for retail investors to stay invested, but in the right kind of stocks, suggests Gaurav Dua of Sharekhan by BNP Paribas in an interview to Moneycontrol.

A correction of 15-20 percent in the Nifty/Sensex and 15-30 percent in high quality companies is a good opportunity to invest with a time horizon of 12 to 24 months, says the Senior Vice President and Head of Capital Market Strategy at Sharekhan by BNP Paribas.

Seasoned in the field of equity research, asset management and investment strategy for over two decades, the ace finance professional predicts a 75-basis-point rate hike by the US Federal Reserve this time as well.

But, the correction in commodity prices and the concerning voices from large corporates like Tesla and JP Morgan could restrict Fed taking a far too aggressive approach, the expert feels. Excerpts from the interview:

With renewed buying interest from FIIs and rally in equity markets from the recent 52-week lows, do you think we have completely bottomed out now and are ready for another great move on the indices?

Markets tend to surprise and move against the consensus view. It is no different in the recent sharp pullback. Last month, there was pessimism all around and market positions were very light which is a right platform for beginning of any pullback rally.

Fundamentally also, the continued correction in metals and agri commodities along with eases pressure in the energy complex has boosted sentiments in India as well as global equity markets.

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Interestingly, the foreign selling pressure has eased out and turned positive lately. So the tactical cues have turned positive now. However, a further meaningful up-move would require better confidence on corporate earnings.

The macro environment has raised risk of downgrades in consensus estimates and the pressure is visible in the quarterly result announcement this season. Hence, we do remain positive on equity markets though the path to recovery is not expected to be smooth one-way movement.

Do you think the recent buying by FIIs indicated that FIIs are gradually returning to India as we are the fastest growing economy in the world?

It is heartening to see ease of selling pressure and return of buying interest from foreign institutional investors. Though it is practically impossible to predict FII flows in the near term especially given the macro uncertainties globally, India as an investment destination is much better placed with easing of the commodity prices.

What are your thoughts on corporate earnings announced so far? Are you still in favour of more downgrades than upgrades?

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The input cost pressure is more visible in Q1 results while the demand environment is still to improve significantly. Thus, the downgrades seem to be higher than upgrades in earnings estimates this result season.

However, we expect marginal changes at Nifty EPS level rather than a big change in earnings estimates which is quite encouraging given the tough macro conditions.

Do you expect the Fed to remain aggressive in July policy meeting especially after inflation and recent economic data? Will it be 75 or 100 bps hike in interest rates by Fed?

The probability of a 100 bps rate hike by US Federal Reserve seems to be growing as per the Bloomberg data. However, the policy rate hike could be 75 bps this time also.

The correction in commodity prices and the concerning voices from large corporates like Tesla, JP Morgan among others could restrict US Federal Reserve taking a far too aggressive approach.

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Considering the current volatility, what is your advise to retail investors?

Retail investors would be well to stay invested but in right kind of stocks. Generally, the correction of 15-20 percent in Nifty/Sensex and 15-30 percent in high quality companies is a good opportunity to invest with time horizon of 12 to 24 months.

And this time is no different. Hence, we have been advocating being selective since the beginning of the year. It advisable for retail investors to focus on high quality companies rather than chase momentum or dabble in penny stocks.

In terms of sectors, we continue to prefer banks, engineering companies, real estate & allied sectors and select consumer companies. We also offer curated portfolios and managed asset products like PMS to investors.

Should one start taking long positions in IT space as we have seen significant buying in last few days?

As an investor, it would be prudent to use the recent correction to accumulate IT stocks. Within IT sector, we prefer Infosys and HCL Technologies among largecap while Persistent Systems, L&T Infotech and Tata Exlsi can be accumulated in the midcap space.

The INR breached the 80 level against the USD for the first time. Do you think the worst related to rupee depreciation is over now?

Except US Dollar, the Indian rupee has actually appreciated against all other major currencies like Euro, Yen, Sterling pound among others. This is despite the high crude-oil prices driven surge in trade deficit and possible clubbing of external debt maturity over the next few quarters.

On the brighter side, the FII outflows have eased out, commodity prices have corrected and the RBI has steeped in to calm the currency markets. So the pressure on INR could ease out in the immediate term; and further decline could be limited and lot more orderly going ahead.

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.