Umesh Mehta of Samco Asset Management
Not just India, but the world at large, has left the inflation woes behind and interest rate moderations are on the horizon, believes Umesh Mehta of Samco Asset Management.
The rupee too has bottomed out with the dollar giving up its strength. “We will see a lot of inflows coming back to India as global slush of liquidity flows out of the US and will find place in countries like India which is the fastest-growing young economy in the world,” he says in an interview to Moneycontrol.
The chief investment officer at Samco Asset Management with over 20 years of experience in the financial services industry believes the technology sector now is attractively valued. “The margins have normalised and almost all company managements are very bullish on the prospects of growth going forward,” he says. Excerpts from the interaction:
Do you believe the worst related to inflation cycle is decisively behind us?
Yes, certainly, the inflation ghost is behind us and soon interest rate moderations will also follow not only in India but across the world. In capitalism, the interplay of recession-growth, inflation-deflation and interest rate cycles are all finely intertwined just like day and night oscillations.
Commodity price peaks are behind us and hence this will be captured in the inflation numbers soon and thereafter the interest rate cycle too will also slope downwards.
Most global investors think India is not cheap by any stretch. What are your thoughts and do you still expect a healthy rally in the coming months, given easing some concerns?
Each country has its own macro and micro dynamics and therefore it would not be prudent to say valuations are stretched just basis price action or what is commonly used YTD (year-to-date) returns.
For example, the US is down by (6.62 percent), Euro Zone (10 percent), Russia (45 percent), China (21 percent) and Taiwan down by (19 percent) at the same time Brazil is up by 8.85 percent, Turkey by 167 percent, Argentina by 58 percent, South Africa by 5 percent and India up by 1.5 percent.
When we analyze each country independently each has its own sets of problem and opportunities. Turkey is massively up due to high inflation which is now receding and so on and so forth for each country, as each has its own macro dynamics.
India compares much better in terms of resilience and robustness of the economy and is still attractively available even if YTD returns are to be seen given the potential it has.
With the easing some concerns, do you think the Indian rupee has bottomed out at these levels?
Yes, the rupee too has bottomed out with the dollar giving up its strength and we will see lot of inflows coming back to India as global slush of liquidity flows out of US and will find place in countries like India which is the fastest-growing young economy in the world.
As the defence sector announced a good set of earnings for the quarter ended September FY23, do you want to add these stocks to your portfolio?
Defence as a sector has seen lot of buzz and stock prices have run up significantly especially after the beginning of Russia Ukraine conflicts. Although some of the companies may be showing sustainable growth going ahead but many of them might faulter.
The expectations of conflicts had led to arms race, similar was the state of Pharm sector in Covid times, however no sooner the conflicts subsides, things will turn back to normal. We will see thereafter if the companies pass our proprietary Hexashield test, then we may take exposure, but currently things are too hot and farfetched.
After significant underperformance in current calendar year, do you expect strong outperformance in tech sector next year?
Yes, technology is the sector which has corrected all the excesses of post covid era world and now is very attractively valued. The margins have normalized and almost all companies managements are very bullish on the prospects of growth going forward.
Now good number of companies are available at their long term mean valuations which makes the sector ripe for a major rally this year going ahead.
What do you want to prefer to bet at these levels – auto or auto component makers?
Its hard to comment on the auto sector as of now because it is at the cusp of major infection, newer players who hitherto had no experience in auto are jumping onto to the EV (electric vehicle) bandwagon, in such an environment investing money with long term visibility of earnings and durability thereof looks hard to find.
Investors have a choice of investing in safer companies rather than proving the point who got it right.
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