Vaibhav Sanghavi of Avendus
Vaibhav Sanghavi of Avendus Capital Public Markets Alternate Strategies said India has and is likely to perform better than other countries. The market has factored in worries on recession, inflation, interest rate hikes and quantitative tightening to a large extent, the co-CEO with 17 years of experience and deep domain expertise in hedge funds told Moneycontrol in an interview.
He is the lead portfolio manager for all its funds and holds a track record of outperforming markets across cycles.
Sanghavi, a chartered accountant, said the markets are yet to see the effects of potential downgrades in growth forecasts, earnings cut and subsequent headline events. This may keep the markets volatile for the next quarter, he said. Edited excerpts:
With the Federal Reserve’s latest commentary, do you think the worst related to inflation and recession is over now?
In the latest Fed policy, apart from hiking interest rates by 75 basis points, the Fed chair expressed his view on policy rates – that the future course of action will be more data dependent. With respect to inflation, we have seen a correction in global commodities by 25-30 percent from their respective highs and along with higher inventories and weakening consumer confidence, inflation may start to subside from the next quarter.
The debate on recession is wide open, with different narratives being formed. But more importantly, we believe potential developments in the quantitative tightening programme are most likely to have a larger impact on the global markets.
We are more than halfway done with Q1 earnings. Has the earnings season been better than estimated or in line with expectations?
In the current earnings season, the anticipated buoyancy in revenue aided by inflation has been in line with our expectations. However, margin pressures continued to dampen sentiments.
There is a possibility of earnings cut albeit, marginally. Having said that, India has and is likely to perform better than other geographies.
After recovering more than 14 percent from June lows, will the benchmark indices be pushed towards a record high or will macroeconomic developments cap the upside?
One of the characteristics of the market is to be optimistic and forward looking. In that respect, the market believes that worries on recession, inflation, interest rate hikes and quantitative tightening, to a large extent, have been factored in. This is being reflected through various indicators like global volatility, US 10-year bond, and dollar index, which have all corrected from their respective highs and aiding the ongoing intermediate rally.
In our view, the markets are yet to see the fall effects of potential downgrades in growth forecasts, earnings cut and subsequent headline events. This may keep the markets volatile, at least for the next quarter.
Is it the right time to bet on domestic-oriented themes with the normal monsoon and upcoming festival demand?
An adequate monsoon along with easing commodity prices and a healthy and growing banking system offers an optimistic domestic recovery story. Hence, domestic-oriented themes will be good bets, going forward.
With commodity prices cooling off, is it time to shift focus from commodity producers to commodity consumers?
Usually, when global growth forecasts are downgraded, commodity producers tend to underperform vis-à-vis commodity consumers.
Commodity consumers benefit from this phenomenon and profitability shifts to them in the near term, especially to companies that have adequate pricing power amid stable demand.
Our economy, which is largely consumer-led, stands to be a beneficiary of decreasing commodity prices.
With the renewal of FIIs’ buying interest, have you seen a significant change in the mood at FIIs’ desk?
While due to the global risk-on environment recently, we have witnessed positive FPI flows, it has come after relentless selling of approximately $ 35 billion in the last 10 months. In our view, we may be nearing exhaustion of this prolonged selling, wherein FPI ownership levels are near to 2012-13 levels. We believe that once we see a cooling off in global inflation, we may see brisk inflows from FPIs, which may just be around the corner.
Will the RBI keep raising rates in upcoming policy meetings following the path of the Federal Reserve and other global central banks?
The RBI has two crucial variables to manage at this point – currency and inflation. In that light, the RBI is most likely to continue increasing interest rates to strike a balance between inflation forecast and reduced rupee volatility.
The RBI will continue to evaluate the decision-making process, balancing currency and inflation.
Recently you launched a quant-based fund. What is the strategy behind launching this fund? What is its relevance in the current investment environment, and what is the basis of this fund?
Following our pursuit for innovative themes and strategies, we recently launched a quant fund – Avendus Market Neutral Fund. The fund seeks to generate absolute returns over the medium term, targeting low volatility and drawdowns while capturing consistent returns. The timing of this fund is very crucial to the present context where we are witnessing persistent volatility in domestic and global markets, led by uncertainties arising from events such as high inflation, looming recession in the US, and geopolitical situations.
This strategy undermines global volatility by maintaining close to zero net exposure, helping to reduce market risk considerably. Our Market Neutral Fund takes offsetting long and short positions (for every Rs 100 long position strategy a Rs 100 short position is taken) using a combination of different underlying models that are based on company/industry fundamentals and quantitative factors. The strategy is designed to take advantage of mispricing and dispersion among groups of securities and sectors based on different fundamentals or quantitative factors.
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