Anand Varadarajan of Asit C Mehta Financial Services
The interest rate hike by the Monetary Policy Committee on Wednesday has been an aggressive stance by the RBI but not a hawkish one, feels Anand Varadarajan of Asit C Mehta Financial Services.
The rate-setting panel had a choice to increase the key rate by 50 bps like in the previous instances but it went for only 35 bps which reflects its inclination towards growth, he says.
In the second half of 2023, there could be an interest rate cut in the US that could take place giving room to RBI for interest rate cut in India as well, says the Director and an experienced financial service professional with over 20 years of experience.
Do you really feel it was a hawkish tone by RBI in its December policy meeting? What could be terminal rate then if there is another rate hike and if yes then will it be in February only?
In my view this is an aggressive stance by the RBI but not a hawkish one. They had a choice to increase by 50 bps like in the previous instances but they choose to just do 35 bps which shows their inclination towards growth.
We expect yet another rate hike in February 2023 to reach anywhere between 6.75 percent and 7 percent in line to catch up with the Fed rate expecting to be at its peak by March 2023.
Also is there any interest rate cut in second half of 2023, to boost economy as several global experts are expecting global slowdown next year?
With inflation nearly peaking and the dovish stand of Fed with lower-than-expected hike in the December FOMC meeting, we expect the Fed peak rate to be breached by March 2023.
In the second half of 2023, there could be an interest rate cut in the US that could take place giving room to RBI for interest rate cut in India as well.
Do you think 2023 will be much better year for equity markets compared to 2022?
The US equity markets are expected to do well as they are attractively priced and the interest rate hikes have almost played out. We believe that in India also there are pockets of mispricing that are available and are expected to play out next year.
We also believe that we would see renewed interest from FII’s to move to emerging markets including India. Hence we expect the markets to do better through specific growth vectors.
Most of experts feel the US dollar is at peak now. Do you agree with them and what are your thoughts on the Fed policy front?
Yes we believe that the USD is at its peak with the interest rate hike cycle nearing its end. With expectation of interest rate cut in the second half of 2023, we expect US monies to move to other emerging markets which could potentially weaken the USD.
We expect a 50bps increase in the December FOMC meeting with the Fed rates to peak anywhere between 4.5 percent and 4.75 percent by March 2023.
What do you most prefer – largecap, smallcap or midcap as we are going into 2023?
While there are a lot of opportunities in the smallcap space, we believe that there are pockets of mispricing across market capitalizations and one needs to focus on companies with mispriced growth vectors offering attractive risk reward scenarios.
Any thoughts on consumer companies due to volatility on the raw material front?
We believe that this segment is already overvalued and hence the increased input cost may trigger a de-rating in these stocks.
What are the themes that you are betting on now?
We for a long term have believed in a couple of growth vectors such as Digital transformation, Electrification of India, Railway infrastructure, Defence and Capital enablers to continue to play out for sometime to come now. While a couple of these themes have already seen good performance we believe that there’s more steam left.
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