Ramkumar K of Reliance General Insurance Company
“It is indeed a buy on deep dips market as far as the equity goes. Many of the largecap companies are at the valuation which was prevailing pre-Covid whereas their revenues and earnings are much higher, thus providing opportunity,” Ramkumar K, Chief Investment Officer at Reliance General Insurance Company, says in an interview to Moneycontrol.
Ramkumar, with more than 29 years of experience and expertise in the banking and investments segment, believes India’s GDP growth in the next few quarters is expected to be much lower than the first quarter, which will threaten earnings projections.
He feels the possibility of a bigger correction in equities cannot be ruled out considering that India is staring at inflation of 7.4 percent even after many interest rate hikes.
Do you think this is a buy on dips market as we don’t have any serious red flags?
It is indeed a buy on deep dips market as far as equities goes. Many largecap companies are at valuation prevailing pre-Covid whereas their revenues and earnings are much higher, thus providing opportunity. Their balance sheets have been deleveraged and strengthened in the meanwhile, and some of them are even lower than their long-term average valuations.
While this provides an opportunity at the scrip level, the overall market pain has remained. India’s GDP growth in the next few quarters is expected to be much lower than the first quarter and it will threaten the earnings projections.
Do you expect double-digit credit growth in the banking space in the coming quarters despite rising interest rates?
The current non-food credit growth is closer to 16 percent over the year. Furthermore, we expect it to remain in low double-digits even if it is threatened by the rising prices as the private capex cycle may come to the rescue.
Do you think the worst is going to be over for IT space in next couple of quarters? Is the IT space looking strong if one is taking long-term view instead of a short term?
Exports contribute more than 80 percent of the revenues in the IT space. Thus, global factors are a significant determinant of growth in our IT sector.
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However, there are expectations of a recession in the US in 2023. This may weigh in when the international clients draw new IT Budgets at the start of the calendar year 2023.
Additionally, travel and employee expenses are rising, coupled with higher attrition rates. All the above headwinds will keep the dollar margins at risk and may be compensated partly by depreciating currency.
The challenges may continue in the next couple of quarters too. The valuations have corrected well and hence provide a long-term opportunity.
Do you think the probability of more aggressive policy tightening by the US Fed is now stronger than a week before?
We think the Fed will be less aggressive. The current approach of rising 75 bps thrice is quite aggressive and it may continue at least once more. Even a moderation can result in a 50-bp rate hike subsequently once or twice.
Also read – US annual inflation edges down to 8.2%, but accelerated in September
What is the possibility of the market getting back to its record high levels or is there any bigger correction first before seeing record highs?
The possibility of a further and bigger correction in equity cannot be ruled out considering that we are staring at inflation of 7.4 percent even after many interest rate hikes. The repo rate is still only 5.9 percent, reflecting negative real yields for more than 12 months. The cost of funding has gone up significantly in the last six months, and it is yet to reflect in the earnings. Further, considering the extent of correction in global markets, they may be relatively more attractive for foreign investors once the global economy stabilises. This may keep our gains subdued.
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Do you expect depreciation in currencies against the US dollar to continue in the second half of FY23?
We expect only moderate depreciation in currencies against the US dollar as most of the depreciation has already happened, and the other central banks have started responding with aggressive rate hikes which may stem their depreciation.
Do you think the macro indicators are in a much better shape now against 1997 and 2013?
India’s macro indicators are in much better shape, no doubt. The Indian rupee depreciated 9.1 percent and 12.4 percent in 1997 and 2013, respectively. However, in the subsequent years, in 1998 and 2014, the depreciation was 8.5 percent and 2 percent, respectively. Now, coming back to the current year 2022, we have depreciated 10.7 percent till date. Therefore, whether we are in better shape now in comparison to 1997 and 2013 will be decided by how our currency will behave from now on in 2022 and 2023.
Further, it is important to keep in mind that global changes are relatively significant compared to the earlier periods.
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