Anil Rego of Right Horizons
Right Horizons PMS, with more than Rs 1,500 crore of assets under management, believes Indian market performance will continue to be influenced by inflation outlook, geopolitical conflicts, and foreign investment flows, says founder Anil Rego.
The fund manager further says geopolitical conflicts and the slowdown in the global economy make India even more attractive as it turns the nation into an alternative investment and outsourcing destination.
FMCG companies are better positioned to pass on the increase in input costs and are likely to perform better during times of higher inflation, making them attractive, says Rego who believes in the contrarian approach of wealth management.
After three years of challenges, the auto sector has started trending upwards. He feels the sector is expected to grow in double digits due to a revival in cyclical demand in most categories and as supply concerns ease.
Looking at 15 percent rally from June lows, do you think now the market is least bothered about risk factors like earnings downgrade, geopolitical tensions, and inflation worries?
We believe the Indian market performance will continue to be influenced by inflation outlook, geopolitical conflicts, and foreign investment flows. The market has already priced in earnings downgrades, but the long-term view remains positive due to favourable demographics; India’s macros are much better placed due to healthy tax collection, vital government reforms and benefits from the China+1 strategy.
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Furthermore, geopolitical conflicts and slowdown in the global economy and make India even more attractive as it turns the nation into an alternative investment and outsourcing destination.
After a significant correction from record highs, the IT index has been consolidating for several weeks. Do you think the sector is waiting for a confirmation signal about the recession in the US and Europe? And if that gets confirmed, do you believe the northward journey will begin in the IT space?
IT sector short-term headwinds, globally higher interest rates, margin pressure, and fear of recession in the US and Europe have led to corrections; however, we are witnessing that demand looks robust and profitability is increasing despite pressures on margins; we have a neutral view in the short term and are optimistic over a longer time frame.
As we see, most of the negativity is out. Do you think midcaps and small-caps will start to outperform large-caps now?
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Our indicators point towards mid and small-cap spaces being relatively undervalued compared to large caps; businesses with solid fundamentals, pricing power, and lower leverage in this space will outperform since they are better in terms of risk and reward.
What are the sectors that look overbought now and which are the industries that look attractive, and why?
We remain positive on sectors like banks, auto, infrastructure, capital goods, and pharma, where valuations and earnings remain reasonable.
After three years of challenges, the auto sector has started trending upwards. It is expected to grow in double digits due to a revival in cyclical demand in most categories and as supply concerns ease. FMCG companies are better positioned to pass on the increase in input costs and are likely to perform better during times of higher inflation, making them attractive.
Do you think the banking sector is making itself ready to move towards record high levels in the coming months, though it has run up a lot in the last few weeks?
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Credit growth in the banking sector is picking up. Net interest margins (NIMs) are expected to increase for banks with solid liability and CASA (current account savings account) books, especially in an increasing interest rate scenario. We have a positive outlook on specific names in the sector.
Oil prices are gradually sliding. Do you think recession fears are causing a correction in oil prices, or are oil prices losing momentum now?
Brent prices have been volatile in 2022 as the oil market reacted to geopolitical developments amid recession fears. Prices have now come below $ 100 per barrel, with the US reporting higher weekly inventory and OPEC and allies modestly increasing production. However, we believe supply concerns may act as a floor at $ 90 per barrel.
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