Pradeep Gupta of Anand Rathi Group.
“India’s inflation will be on a downward trend, which will continue further but until early 2023, inflation will be outside RBI’s comfort zone of under 6 percent,” said Pradeep Gupta, Co-founder & Vice Chairman of Anand Rathi Group in an interview to Moneycontrol.
He said inflation coming close to 4 percent in March 2023 is not entirely off the table as well. From a structural medium- to long-term perspective, Anand Rathi Group remains positive on equity as an asset class and continues to believe that Indian equities will deliver better risk-adjusted returns compared to most other major markets, he said.
Despite a likely increase in volatility, Gupta, who has over two decades of experience in financial markets, said they do not expect a significant correction in the equity market barring unexpected negative developments. Edited excerpts of the interview:
Are we seeing a bottoming out of the rupee against the US dollar with easing inflation concerns?
In the current year, the dollar index rose by almost 16 percent but with the news of inflation and the possibility of a slowdown in the pace of rate hikes, the US dollar index fell sharply. This fall also provides some relief to other economies. We can expect some short-term volatility and shocks due to global news and further data points. However, the Indian rupee in comparison to other emerging markets has not depreciated as much.
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What is your stance on the defence space that has seen a significant run-up recently?
We strongly believe that investment strategy has to be anchored in strategic asset allocation. There is no one-size-fits-all strategy for all types of investors. Saying that, I am neutral on defence as a sector. Investment strategy should not be tinkered with frequently unless it is yielding persistently sub-optimal outcomes. At the same time, from a tactical perspective, a modest increase in allocation to fixed-income assets and an equivalent reduction in equity assets can be considered.
Do you see inflation easing in the coming months?
The CPI inflation data for October 2022 came at 6.77 percent, a 3-month low, whereas the WPI data eased to 8.33 percent, breaking the 18-month double-digit track record. The inflation dynamics in India has changed significantly in recent months. Previously, inflation was driven by global factors. For instance, if you look at food inflation, the leading category was edible oil and pulses, both of which are imported by India.
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Food inflation is now being led by vegetables and cereals, which are totally domestic-oriented. All in all, food is the biggest driver of inflation currently. Going forward, we can expect a favourable base for food inflation, which is the largest component in the inflation data. In my opinion, India’s inflation will be on a downward trend, which will continue further. But until early 2023, inflation will be outside RBI’s comfort zone of under 6 percent. Coming close to 4 percent in March next year is not entirely off the table as well.
Do you expect the market rally to continue as most of the negatives seem to have already been priced in?
The earnings season, so far, has been broadly in line with expectations. On margins, there seem to be slightly more positives versus negative surprises. This seems to have emboldened investors and that, in turn, has resulted in a noticeable rally in the equity markets in the recent past.
From a structural medium- to long-term perspective, we remain positive on equity as an asset class and continue to believe that Indian equities will deliver better risk-adjusted returns compared to most other major markets.
We also think that a significant part of the likely negative developments in the near future including recession in Europe, possible recession in the US, continuation and perhaps escalation of the Russia-Ukraine war, a low decline of the inflation rate and continued monetary tightening by the major central banks are already in the price. Therefore, despite a likely increase in volatility, we do not expect a significant correction in the equity market barring unexpected negative developments.
Which are the themes that you are betting on?
We are positive on financials, information technology and investment theme-related sectors such as capital goods. We are negative on global cycles such as oil and gas and metals. We are also negative on consumption theme sectors such as consumer durables, automobiles and, to a lesser extent, even the FMCG sector.
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