Piyush Garg of ICICI Securities
“Going forward, we are positive on Indian equity markets but given the higher valuation, a further rise may be muted,” Piyush Garg of ICICI Securities says in an interview to Moneycontrol.
Markets are coming out of the last 1.5 years of range as the US dollar and inflation seemed to have topped out, while triggers like higher government expenditure, pick-up in private capex and resurgence of the housing market have been the major driving force, he feels.
The Executive Vice President and Chief Investment Officer, with around two decades of experience across various facets of finance, likes both PSU and private banks as they support different client bases, all of which will use credit to expand.
Going forward, he believes overall 15 percent+ credit growth in the banking sector for FY24 is sustainable. PSU banks are high on corporate lending and have been well capitalised, which can keep them afloat in this move, he says.
Do you think the market is looking sustainable at least till the end of the current financial year?
Markets are coming out of the last 1.5 years of range on the back of the topping out scenario scene in the US dollar and inflation. Most negatives are priced in the developed world currencies along with some expectations of the peaking of the Fed Fund rate closer to 5.25 percent. This has checked the surge of the dollar. On the domestic front, major triggers like higher government expenditure, pick-up in private capex and resurgence of the housing market have been the major driving force.
Going forward, we are positive on Indian equity markets but given the higher valuation, a further rise may be muted.
Considering 5G is a big positive, are you gung-ho on telecom space and should it be a part of a portfolio?
Yes, there can be multi-fold benefits of 5G and various applications like Virtual Reality, the Internet of Things and Artificial Intelligence can be used extensively. 5G not only improves data transmission speed, and reduces latency, it helps computers use lesser internal memory, making their processes faster. So existing technology infrastructure gets a massive upscale, with no development costs. The uses of these technologies can enhance the productivity of various industries like hospitals, automobile, industrials, etc and will bring new dimensions to the current methodologies. Also, telecom companies’ ARPUs (average revenue per user) are on a rising trend and have already increased from last year’s Rs 125 to Rs 175.
Further tariff hikes are expected going forward. In fact, Bharti Airtel has already announced the removal of Rs 99 prepaid in Haryana and Odisha circles and has brought it up to Rs 155 which is effectively 57 percent increase. ARPUs are now heading towards Rs 300 in the coming financial year.
Do you think IT companies will sustain their healthy double-digit growth in the coming years?
Largecap IT companies are different from the US IT sector. IT companies are generally spoken of as one basket, but underneath they are multiple distinct businesses – namely the large players, the specialised midcap players and product-based companies. Large IT players have a fairly diversified clientele, and irrespective of the market cycle will continue to receive orders from the performing sectors of the market. The mid-sized specialised players are more prone to cyclicality and the market cycle of their clients’ experience, so we are cautious in this space.
The product-based companies, which are a lot similar to the Facebooks and Twitters of the West, may see some challenges as discretionary spending shrinks, and we recommend staying away from these.
Lastly, for India to have structurally bullish growth in the coming years, IT has to play a massive role in that expansion as well.
Do you expect any kind of big run in oil prices considering the endless geopolitical tensions? Also is there any possibility of oil going back to its record-high levels?
The global slowdown fear has led to lower oil prices in the last one month. In fact, OPEC was expected to increase supply, on account of the embargo on Russia, from December. In the G-20 meeting, the government reiterated its focus on fulfilling 30 percent of the energy demand in India through renewables. We believe ethanol blending of 20 percent by 2025, capex in solar, green hydrogen and electric vehicle (EV) is likely to pick up momentum going forward.
After cleaning of balance sheets with lower NPAs, do you prefer to bet on PSU banks or do you still want to be with private banks?
The credit growth in the banking system has seen a sharp rise from 5 percent in FY22 to the current 18 percent. The credit demand is coming from all segments like retail, SME and corporates. The rise in credit growth is also due to increased working capital requirement (inflationary pressure) and rising capex. Going forward, we believe overall 15 percent+ credit growth in the banking sector for FY24 is sustainable. PSU banks are high on corporate lending and have been well capitalised which can keep them afloat in this move. As such, we like both PSU and private banks as they support different client bases, all of which will use credit to expand.
What are your thoughts on FOMC minutes? Do you think the Federal Reserve will slow on rate hikes and take a pause sooner than later?
The US Fed has clearly frontloaded the monetary policy by raising the Fed Fund rate to 4 percent by November 2022 and this will impact demand in 2023. Due to a sharp decline in commodity prices, reversal in elevated wage growth and higher availability of semi-conductors, the US inflation has started tapering off from the peak seen above 9 percent.
While the previous inflation print was lower than the market consensus, we continue to monitor it to see if that’s a trend. We do believe inflation is tapering off and will eventually reach the 6 percent mark in the US in 2023.
While the Fed was previously equivocal about raising rates to control inflation at all costs, we do see that view changing now, with several members voicing their opinion on the damage and instability that can be caused to capital markets due to sustained high rates. As we now have mixed opinions arising, we should expect the Fed to slow down but it also depends on the inflation prints that come in the following months.
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