Naveen Chandramohan is the Founder & Fund Manager at ITUS Capital.
“I believe we will continue into the tightening cycle in the first half of the year before Fed looks to re-evaluate its mandate. This could potentially lead to earnings for global corporates slowing down versus expectations,” Naveen Chandramohan of ITUS Capital says in an interview to Moneycontrol.
He believes this is the biggest risk going into the first half of next year. “And I see that play into sentiment.”
The founder and fund manager of ITUS Capital with 16 years of experience in the financial markets and 11 years as a fund manager expects volatility to continue in the equity markets in 2023. But the year being a good year for equities, especially for bottom-up stock picking, he says.
What do you think about the global macro environment in 2023?
From a global perspective, I have maintained that Fed will look to raise rates into next year. While we look at inflation cooling off, the Fed has a dual mandate of inflation and employment.
I believe we continue into the tightening cycle in the first half of the year before Fed looks to re-evaluate its mandate. This could potentially lead to earnings for global corporates slowing down versus expectations. I believe this is the biggest risk going into the first half of next year and I see that play into sentiment.
Currently we are positioned in the fund with a higher-than-normal balance of cash because of the risk reward we see on valuations vs future growth. We would be extremely bullish if we do get this correction we anticipate.
What do you think about the market in 2023?
I believe that the market will offer interesting opportunities to deploy capital in the first half. I expect volatility to continue in 2023, but the year being a good year for equities, especially for bottom-up stock picking.
What are your broad expectations from the Union Budget in 2023? Is it going to be a game changer ahead of the general elections in 2024?
I can only answer this question from a psychological perspective. Thinking from the shoes of the government, considering their agenda would be to strengthen their hold in 2024, which is only fair, the budget I would expect to be non-disruptive in nature with a hint of populistic measures behind it.
I believe the government has created a conducive environment for business over the last 2 years and I expect that to continue beyond the budget.
As someone from the capital markets, if there is something I would like to see in the budget (though I believe the odds are low) – this would be my bucket list:
a) Increase STT (securities transaction cost) but reduce LTCG (long term capital gains tax) to zero percent
b) Bring in a tax rebate to promoters who sell their stake in a private company if they reinvest the capital proceeds in the public market in the same financial year
c) One uniform tax rate across all capital market instruments for capital gains – private, public, real estate and debt.
What is your investment philosophy?
At ITUS, we are growth investors. We look to be long-term investors in businesses where we are investing in the vision of the promoters or the management teams of the business. We expect this vision to translate into numbers in 3 ways – a) cash flow generation from the core business b) incremental returns on cash flows typically north of 15 percent, c) businesses that can protect their pricing power over time.
When we find these characteristics, we would want to own these businesses over long periods of time. We are investing in people and we believe its people who make the business work. We will always avoid great businesses run by poor people whose vision is not going after a large market.
Do you believe a large part of re-rating of defense stocks is done?
We do not own defense stocks. So it would be inappropriate for us to comment on risk we do not own. Like I said, for us it’s about the people who run the business and if the order book or visibility is dependant on extraneous factors, we do not look at such businesses as structural in nature.
Do you believe the monthly investment in SIP in equities to substantially increase in the next year?
Quite the contrary – I expect this to decrease over the next few quarters.
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