Nishit Master of Axis Securities PMS believes that the global recession could be deep if there is no course correction.
But for India, the story is different, he says in an interview to Moneycontrol.
“India is not significantly linked to global supply chains, and there is a high probability of some European and Chinese manufacturing shifts to India, which should be beneficial for the Indian economy,” the portfolio manager said.
Nishit Master, who has an experience of more than 16 years in portfolio management, believes the rupee depreciation against US dollar can continue for some more time till US Fed keeps tightening liquidity conditions.
Most global experts believe the recession, if any, will be a mild one. Do you agree with them and what are your thoughts?
Global markets and the economy have gotten used to easy money since the 2008 global financial crisis. It is difficult for the global central banks to wean the economy and markets off this easy money without collateral damage.
We believe that if the US Federal Reserve continues with its stated path to bring down inflation to 2 percent through liquidity tightening measures, then there is a high possibility of a hard landing, especially in the developed markets and China.
There is an added angle of high energy prices in Europe which is eating up their competitiveness and could lead to a significant shutdown of manufacturing capacities in Europe if sanctions on Russia continue.
All these factors make me believe that the global recession could be deep if there is no course correction.
For India, the story is different. India is not significantly linked to global supply chains, and there is a high probability of some European and Chinese manufacturing shifts to India, which should be beneficial for the Indian economy.
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Do you think the US dollar index is near its peak now?
As long as the US Fed stays its course to bring inflation down to 2 percent through liquidity tightening measures, the US dollar index should do well and move up. The reversal will happen when the US Fed pivots towards a more accommodative policy.
Do you see the beginning of a strong rally by the end of this calendar year, especially after the last policy meetings of central banks for the calendar year, or will the market go back to June lows before a sharp uptrend?
We expect this year to continue to be volatile and expect the US Fed to pivot towards a more accommodative policy next year, which should take markets higher.
Do you really prefer to avoid IT stocks right now and focus on others?
We are currently underweight in the IT sector as we believe that there is a high probability of both US and European economies entering a recession which will impact the demand environment for IT companies going ahead since these are the key markets for Indian IT majors.
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What is your preferred bet (two-wheeler, three-wheeler, passenger vehicle, or commercial vehicle) in the auto space and why?
Amongst the auto sector, we like passenger vehicles and commercial vehicle sub-segments as we are witnessing strong demand for both these segments, and the existing players are also formidable competitors in the electric vehicle (EV) space, while in two-wheelers, there is the advent of new players in the EV space which can increase competition and the demand environment for two-wheelers is still weak especially since the monsoons in some regions have been erratic.
Do you see a decline in commodity inflation in the short term?
We have seen commodity prices falling off late, but the near-term outlook is uncertain as there are two competing forces at play that can take them in either direction. On one hand, you will have capacity shutdowns during winter in Europe and China, which is positive for commodity inflation, and on the other end, if Europe, the US, and China enter a recession, then commodity demand can contract significantly, which is negative for commodity inflation.
The prices of commodities will be determined by these two key factors, the outcome of which is not yet clear to me.
With the significant deterioration against the US dollar, is the worst over for the rupee?
We have seen the rupee depreciating against US Dollar, and I believe this depreciation can continue for some more time till US Fed keeps tightening liquidity conditions.
But if one compares Euro, Pound, Chinese Yuan, or Japanese Yen, then the rupee has outperformed in the last one year since Indian economic fundamentals remain strong, versus these economies which should continue in future as well.
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