Naveen Chandramohan is the Founder & Fund Manager at ITUS Capital.
ITUS Capital founder Naveen Chandramohan expects a strong set of numbers across banking and financial themes, consumer discretionary growth and manufacturing sector for the September quarter.
Chandramohan, who worked with Hutchin Hill as a fund manager and responsible officer in Hong Kong before setting up ITUS Capital, however, does see the possibility of a 10 percent correction over policy tightening and “geopolitical noises”.
“If the markets do get that, I would turn a significant buyer of risk into equities,” Chandramohan, who has 16 years of experience in financial markets and manages assets worth Rs 800 crore, tells Moneycontrol in an interview. Edited excerpts:
What are your expectations for the September FY23 quarter earnings?
We are set up for a strong Q2FY23. Consumer discretionary spends continue to be strong and our channel conversations on the ground show that MSMEs (micr0, small and medium enterprises) are running at the highest capacity utilisation over the last four years (going back pre-Covid). I expect robust numbers across banking, financialisation themes, consumer discretionary growth and manufacturing.
The pockets where growth could be tepid is the state-driven capex. We would be monitoring the demand growth of companies that sell into Europe– predominantly across IT and pharma.
Are you still bullish on the banking & financial services space for the September quarter after their provisional numbers?
Today, 40 percent of the index is financials and the expectation is of robust credit growth. Alongside, we are seeing strong deposit growth for specific franchises, and this is coming at a time when the provisions at the banks have room for reserve release (against the loss given defaults that the banks run).
So yes, the numbers are expected to be strong. I would, however, have my reservations on the rally in the space from here in the short term.
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Do you expect the market to sink to June lows by end of the financial year?
Short answer yes. I continue to believe that the Fed will err on the side of caution towards its interest rate policy. They will continue to raise rates by 100 bps over the next six months, which has a high probability of resulting in a demand-led slowdown temporarily.
I would price in the possibility of a 10 percent correction in the markets around policy and geopolitical noises, however, if we do get that, I would turn a significant buyer of risk into equities.
Do you think IT stocks have moved in the value zone, especially after the sharp correction this year? Are you thinking of a gradual buying in the space?
I would split them into two: a) those who have purely a services angle to them and b) those who have a niche value addition layer to them, depending on the sector they operate in. I would still be cautious on the former but a net buyer of the latter.
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Do you expect the US Fed to be less hawkish from the next policy meeting?
If I was a betting man, I would say that the Fed would not change its stance of hawkishness in to the next two meetings. They have guided the markets towards a policy hike, and I believe they would want to set the policy rates first. However, I believe the state of the current global macro environment means that they would reduce the pace of the selling of bonds and ABS (asset-backed) securities from the balance sheet.
Do you see a possibility of the RBI lowering the growth forecast below 7 percent?
The slowdown in the forecast for me came from two factors–a) an increased interest rate environment due to global scenarios and b) the central government’s balance sheet having a short-term increase in the expenses due to farm subsidy and reserves reducing due to RBI looking at protecting the currency.
In the near term, I believe the RBI would have to raise rates on the supply side, which could result in a temporary growth slowdown. However, I think this is part of the broader normalisation of the monetary policy and this should not affect growth in the medium term.
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