Manoj Trivedi of Jama Wealth
“Equity markets will be choppy in 2023. Liquidity, or the lack of it, will continue to drive markets,” Manoj Trivedi, the co-founder and Director of Strategy at Jama Wealth, says in an interview to Moneycontrol.
Trivedi says a tightrope-walk-balancing need to control inflation without slipping into recession by various economies, particularly the US, will be the key.
On sector idea, “Given the rich valuations of companies in the private sector, and the quest for “multi-baggers” by active fund managers, we do expect a re-rating of many PSU stocks, which have been relatively under-valued,” says Trivedi, who has over 30 years of experience in investment advisory, management consulting, project finance, and fintech.
Which are the key factors to keep equity markets volatile in 2023?
Equity markets will be choppy in 2023. The likely end of Russia-Ukraine war and the inferences that various countries make out of it will likely shape many political decisions in the coming years, although the end of war will in itself be welcome.
Liquidity, or the lack of it, will continue to drive markets. The tight rope walk balancing need to control inflation without slipping into recession by various economies, particularly the US, will be the key.
We do expect input prices to soften, which should result in improved profitability and thus, better valuations for many corporates.
We do not expect Covid to impact global economy as it did in 2020 and 2021, as the world, India in particular, is better prepared to handle such a crisis, but if new variants result in increase in death rates, then Covid can become the single biggest factor in pulling down the markets.
Which are the two themes to play out in coming year?
The single largest driver of markets would be Liquidity. Interest rate movement, more specifically market expectations about monetary policy, will be the most dominant theme in 2023.
Covid has the potential to be spoilsport, but another theme that can play on our minds is food security. There is a need to ensure that the rising population is well Fed, through increase in agricultural productivity.
Environmental concerns would increase, resulting in a shift in favour of sustainability. Oil prices will correct. Non-conventional sources of energy will find more takers. We are in for some very interesting times.
Do you really think Indian PSUs is going to be a great story in coming years?
It is unfair to comment on PSUs as a generic entity. PSUs have played a great role in nation building over the last 75 years. They are often branded as inefficient as they have accommodated and sometimes championed many Government initiatives, which might not justify the criteria used by a private enterprise. PSUs have also had a fair share of problems, corruption and Government interference being most rampant.
However, over the years, particularly in recent years, with digitization, many of these ills are being addressed. PSUs are looking to be more efficient. While Governments still look at how the PSUs can be leveraged, the size and scale of Indian economy, as well as transformation in its state from being a poor, under-developed economy dependent on Government, to being amongst the fastest growing and one of the largest economies, has meant that the dependence on PSUs to carry out non profitable schemes has reduced.
Purely from an investment perspective, we are not biased against PSUs, although we remain cognizant of the challenges. Given the rich valuations of companies in the private sector, and the quest for “multi-baggers” by active fund managers, we do expect a re-rating of many PSU stocks, which have been relatively under-valued.
However, one needs to be stock specific in respect of the investments being made. We cannot simply go with prospects for a sector. We would rather classify a company into sectors based on its operations, than its ownership composition and let the Roots and Wings philosophy choose our picks.
Do you believe markets should bottom out in first half of next calendar year and will see record highs in second half?
We have always maintained that “investors” must look at Equities from a long term perspective and invest keeping their time horizons as well as asset allocation in mind.
Traders need to worry about whether markets will bottom out or set record highs, but even 1 year can be a very long time for a trader. It all depends on what is one’s strategy.
Having said that, there seems to be a broad consensus that markets may soak in some more correction in the first half, before resuming its upward journey in the second half. We concur with this view, although our investment advice is not based on such short term predictions.
Today’s markets are not just dynamic, they react very fast, owing to the underlying nimbleness of capital. If the FED even indicates that it is veering way from its “hawkish” stand, markets could see more buying almost immediately.
Do you think the market has already priced in that the US is unlikely to face any major recession?
Technically, while the NBER has not announced a recession, if we apply the most acceptable definition of recession as 2 consecutive quarters of negative growth, the US has already gone through a recession and come out of it.
So, this debate on whether the US will face recession, as per our house view, is only for academic debate.
We feel that the NBER is unlikely to acknowledge this, which means the US will officially not face any recession. Thankfully, inflation is softening, which means, despite hawkish stance, we will see dovish action by the Fed in the months to come. Markets seem to have factored in the same.
What are your learnings from 2022 and what is your advise to investors for the coming year?
2022 taught us many things. Some of which already existed in economics text books, while some challenged the wisdom of these books.
For us, some key lessons were as under:
a) Continuous printing of money will not solve our problems, or the problems of the US. One needs to also manage the Supply side for economy and markets to be balanced.
b) Gold is now just a commodity, no longer the trusted safe haven and inflation hedge that it was touted to be. Despite a raging war and tough economic conditions, it has failed to attract funds looking for safety.
c) The best of portfolios can underperform for a while. Markets keep testing investors’ faith in their investment philosophy.
d) No crisis is as big as it is made out to be by the markets, as markets eventually recover.
e) Liquidity continues to be the God of all markets.
The advice to investors for the coming years is simple. Maintain your asset allocation, re-balancing periodically across asset classes in a clinical way. Take help of trusted Professional advice. Avoid the twin demons of Greed and Fear. Do not chase “multi-baggers”. Invest is businesses that deliver consistent growth.
How do you sum up the year 2022 with respect to equity markets and economy?
2022 has been a remarkable year both from markets as well as economy perspective. Indian Equity markets had a prolonged period of FII capital outflow, starting October 2021, and yet were resilient, narrowly escaping the technical definition of bear markets (20% fall from peak).
Investors, particularly millenials who entered the market this year through IPOs as well as direct investment in stocks, would have learnt the virtues of patience, as against an instant increase in their portfolios. The calendar year is ending on a flattish note, despite huge Ups and Downs, which should help investors understand that neither Euphoria nor despair lasts long enough. One must believe in one’s investment philosophy and stay invested.
2022 marks the grudging global acceptance of India as a rising economic super-power. Its resilience, despite stiff multiple challenges, is shifting the narrative from what happens in rest of world impacts India to what happens in India influences the rest of the world, particularly on account of its rise as a digital super power.
What do you expect from the Union Budget 2023 and will it be progressive one?
We expect a progressive Budget in February, thanks to our buoyant tax collections. Fiscal deficit is in check and is unlikely to be higher than target for 2022, but we will resume the Fiscal consolidation journey.
The Government has largely avoided populist measures and industry specific tweaks, focusing on the big picture. Capex spends should continue, particularly with elections in 2024. There may be some tax cuts and tax incentives, which can serve as headlines, but without much of an impact on the treasury.
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