Raghvendra Nath is the Managing Director of Ladderup Wealth Management
“Major economies are showing signs of slowing down as 2023 draws near, and some of them may even experience a recession,” Raghvendra Nath of Ladderup Wealth Management says during a conversation with Moneycontrol.
The UK and some major players in Europe, notably Germany, were extremely vocal about the slowing economic development. The US may also experience a similar tendency, as China has already entered a slump.
Hence, the Managing Director who leads the private wealth management business, says India would also be impacted by this since fewer foreigners are spending money abroad, which hurts India’s exports. The domestic demand will have a big impact on GDP growth in the upcoming year.
With more than 27 years of corporate experience, Raghvendra feels given the tensions between Ukraine and Russia and the interruption to supply chains, world earnings may be downgraded, and India’s GDP growth predictions may also be lowered.
As we are going into next year, any thoughts on the FII flow?
We expect FII flow to increase over the next year considering the opportunity that Indian markets provide to investors. The relative performance of Indian economy and markets this year vis a vis other markets has been commendable. The various themes helping this narrative are the China plus one strategy playing out – many businesses looking to de-risk their supply chain dependency on China, stable macro-economic conditions and policy framework in India, expectations of slow rate of interest rate hikes across the globe.
India saw withdrawal of $ 34 billion from Indian equities between October 2021 and June 2022, then in July and August FII flows were positive but again turned negative in September and were flat in October. The latest data of $ 4.45 billion net flows in November signals towards the optimistic outlook towards India.
November flows reflected strong buying in the financials space, accounting for almost 1/3rd of the net inflows since the companies in the sector on the prospects of a fresh credit cycle and strong fundamentals looks attractive to global investors. With signs of recession in west and the impact of inflation in food grains, energy impacting other emerging markets more significantly, India stands to gain considering the resilience of the domestic demand and the economy.
Do you think the RBI’s terminal rate would be 6.5 percent? Also what are challenges for RBI in the coming year?
With the announcement of another 35 bps hike the repo rate currently stands at 6.25 percent, to say with 100 percent certainty that the terminal rate would be 6.5 percent is difficult, but we expect it to be around this level. Future hikes are expected since RBI aims to break the persistence in core inflation and to bring the inflation within its tolerance levels.
Although future hikes as indicated would be data dependent and after considering the effect of earlier rate hikes on the economy. The key challenges that RBI faces are global headwinds arising from Geopolitical tension in Europe, inflationary pressures continuing, global slowdown – Adverse terms of trade, balance of foreign exchange reserves and currency depreciation also RBI needs to set an equilibrium between measures undertaken to drive growth and managing inflation.
Do you expect earnings downgrade and cut in GDP growth estimates in 2023?
Major economies are showing signs of slowing down as 2023 draws near, and some of them may even experience a recession. The UK and a few other major players in Europe, notably Germany, were extremely vocal about the slowing economic development. The US may also experience a similar tendency, as China has already entered a slump.
India would also be impacted by this since fewer foreigners are spending money abroad, which hurts our exports. The domestic demand will have a big impact on GDP growth in the upcoming year. We are in a two-front war where exports are declining, and import are becoming more expensive because of depreciation of INR and India being a net importer of goods and services.
At the same time, we are facing fierce competition in the export market from other nations whose currencies have depreciated more than the rupee against the US dollar.
Given the tensions between Ukraine and Russia and the interruption to supply chains, world earnings may be downgraded, and India’s GDP growth predictions may also be lowered.
Do you think with weakening US dollar, emerging markets will have a great show in 2023?
Everyone gains from a weaker dollar, except for the USA. If the US dollar declines, there may be a rise in the amount of money entering emerging markets. As the value of the dollar rises and money invested in emerging countries is shifted back to the safer bonds of the United States, emerging markets lose both foreign capital and foreign investment.
Foreign money will start to enter the market in quest of higher returns than those offered by investments denominated in dollars as capital outflows begin to reverse. Additionally, emerging economies can buy US exports at reduced prices when the value of the dollar declines. As interest rates start to decline, it also becomes simpler for economies to pay off debt.
As import costs decline, the fiscal deficit of emerging economies decreases. Since the performance of emerging market (EM) assets has historically been highly correlated with the direction of the US dollar (USD), even the stock market enters a recovery stage.
Do you think the downside in auto stocks is limited from here on?
We think the auto industry has largely bottomed out. Along with price increases and growing finance costs, which continued to have an impact on auto sales, the semi-conductor supply continued to operate as a headwind for the automotive industry.
Looking at the November sales figures, it is clear that there is a strong demand, as seen by the strong increases in passenger vehicle (PV) and tractor sales. The original equipment manufacturers (OEMs) have now increased their spending for the upcoming years in order to accelerate their capacity development ambitions.
Due to the fact that rural India’s economic situation is not yet stable, we might only witness a slow increase in the sales of two-wheelers, even though there may be some improvement. The cost of financing and the price of raw materials would be key determinants of how fast the auto industry would grow going ahead.
Do you see interesting opportunities in the power sector?
In the coming years, coal will continue to be a crucial commodity for India, thus it’s critical that production maintains up with demand to prevent imports. The availability of coal and the summertime are two elements that have a significant impact on the electricity business.
India still relies heavily on coal-based thermal energy, which is why coal prices have a direct impact on power firms. The problem with these businesses is that they are unable to pass on the increased cost of raw materials to the customer, which has a direct impact on their profitability.
Although India generates a significant amount of its own coal, the country also uses it in other industries, which strains the country’s coal supply and must be addressed through imports. The profitability of the electricity sector was being negatively impacted by both the increasing dollar (due to higher imports) and the growing coal prices. It will be interesting to observe how India’s green energy efforts fare in the next few years and whether India is able to reduce its reliance on coal.
Since renewable energy only makes up a small portion of the country’s overall power production, there is a significant amount of room for growth in this area.
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