The Indian stock markets need foreign investment inflows to break the record high of October 2021 and although August has got off to a good start, evidence is needed to show that this path is more structural than cyclical, Harendra Kumar, MD of Elara Securities India, told Moneycontrol in an interview.
Headline company results in the April-June quarter might be mixed, but the quality of earnings is good, said Kumar, who has more than 20 years of experience. Banking stocks are the silver lining, which is a good indicator of how the economy is performing, he said. Edited excerpts:
Do you see any major risk to the full-year growth forecast of 7.2 percent by the Reserve Bank of India?
We do not presage any risks to the forecasted number… given that the rupee has stabilised and inflation is on the downward path. In fact, GST collections and credit growth numbers point to firmer trends than most are anticipating.
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Do you see the RBI thinking of a 6 percent repo rate by the end of CY22?
We expect another 25-35 basis point hike in the policy rate. Also, the Monetary Policy Committee may turn data-dependent post this as it evaluates the impact of the recent hikes on the growth-inflation trajectory and considers the impact of the disinflationary impulses.
What is your reading of the June quarter earnings? And after the June quarter earnings, do you still see the risk of more downgrades?
The headline numbers might be mixed, but the quality of earnings is good. The silver lining has been banking stocks, which is a good indicator of how the economy is performing.
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Also, capital good companies are showing a positive trend in growth. With regard to margins and inventory losses, they are transient and revert to the mean sooner than expected. The outlook is more likely to improve than worsen.
What is the market looking for to get itself at the record high of October? What are the risk factors that can cap the market upside?
The inflation number is key to the markets as it is the key cog in the interest rate/currency/flow matrix. For us to break out of the October 2021 high, we need to have the tailwinds of foreign flows. August has seen a good beginning but we need more evidence that it is going to be structural than cyclical.
In the past year, the biggest outperformer was power, which rallied 75 percent. Is it overbought? Do you see significant opportunities in the space?
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Utilities and power stocks will enter a growth phase in the next decade with significant addition to power capacity. Valuations are benign and sub-book. There is more headroom for outperformance for power stocks. The new distribution reforms that are proposed will keep interest elevated.
Most experts still expect IT to consolidate for another couple of quarters. Do you also feel so or is it time to start adding positions in the tech space?
We would err on the side of caution as we see headwinds for growth. A slowdown in the BFSI (banking, financial services and insurance) sector is imminent. The ask on growth in terms of elevated PE (price-to-earnings) multiples is still high. Even if they don’t fall too much, they will be relative underperformers.
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