Rahul Singh of Tata Mutual Fund
Equity markets are likely to remain volatile for the next three-six months as valuation adjustments in response to the higher-for-longer interest rate scenario is still in process, Rahul Singh of Tata Mutual Fund says in an interview to Moneycontrol.
Singh feels corporate earnings so far have been neutral to mildly positive as banks have led the positive surprises with credit growth, margin expansion, low credit costs, while the expected negatives for the IT sector have not materialised to the same extent with deal pipeline and margin support.
The chief investment officer for equities, backed by his over 26 years of investment experience, leads the fund management and equity research teams at Tata Asset Management. Some form of recession in the US is a given and interest rates could remain elevated for entire 2023, he feels. Excerpts from the interview:
Do you think the equity markets are a bit too optimistic about 2023 especially after too much volatility this year?
Equity markets are likely to remain volatile for the next three-six months as valuation adjustment in response to the higher-for-longer interest rate scenario is still in process.
However, on the positive side, India’s corporate earnings are displaying resilience on the back of (i) credit growth and capex revival, (ii) margin levers as input costs moderate from peak levels, (iii) manageable impact on IT services so far and (iv) strong discretionary urban consumption in goods and services. As a result, we have not witnessed any downgrade in the Nifty50 earnings over the last three months, despite the rising risk of recession in the developed markets.
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Do you expect interest rates to remain high in 2023 as earlier several experts were expecting some decline in interest rates in second half of 2023?
It is becoming clear that the Central banks are quite determined to engineer a slowdown/ some form of recession to break the inflation spiral which seems to be stickier than what was earlier envisaged.
The commentary from these markets suggest that the peak Fed rate might be held for a few quarters as the policymakers want to avoid the mistakes of 1970s. Such a scenario would imply that interest rates could remain elevated for entire 2023. Equity markets are however likely to factor that in the next three-six months itself.
Along with oil prices, what are other challenging factors for the equity markets from one year down the line?
Geopolitical risks have increased going forward. This could reflect in the oil/commodity prices, currencies as well as the equity risk premium. As far as Indian corporate sector is concerned, it appears to be in sweet spot as a mild recession could actually help the margins even as topline growth is supported through the domestic cyclical recovery.
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There are some economic linkages however in the form of IT services and other exports which will be impacted if the slowdown in developed markets degenerates into a sharp and deep recession.
Do you think it is a good start for September quarter earnings season after looking at the earnings announced so far?
Earnings so far have been neutral to mildly positive as banks have led the positive surprises (credit growth, margin expansion, low credit costs) while the expected negatives for IT sector have not materialised to the same extent (deal pipeline + margin support).
We expect similar trend to persist as the other drivers of earnings (capex cycle, urban consumption) have persisted and may get marginal relief from lower input costs.
What is the probability of recession in the US?
Some form of recession is a given. However the debate is between whether it will be a soft landing (shallow & short recession) or a hard landing (long deep recession).
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What is the investment strategy behind the launch of Tata Nifty Midcap 150 Momentum 50 Index Fund?
Momentum strategy takes into consideration the past price performance of the stock over a defined period. We believe that price outperformance of a stock captures a lot of good around the stock, hence once a trend is well-established, it may be likely to continue.
A carefully crafted investing strategy may provide the confidence necessary to continue with the methodology in all time frames of the market. Our cost-efficient offering through an Index Fund, could create an opportunity for long-term equity investors.
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