Santosh Joseph of Refolio Investments
The year 2023 seems to be very promising. With the Budget this year and the policy action from the government for the next one year, considering that we are heading up to elections in 2024, should keep the markets in a very buoyant mode,” Santosh Joseph of Refolio Investments says in an interview to Moneycontrol.
The CEO and Founder feels the focus for budget 2023 will be to stimulate and give the economy a push. The government will of course look at revival in consumption, credit growth and sops for some sectors, he believes.
The financial services professional with over 20 years of experience in asset management, banking and insurance further believes that the broader consumption should improve in 2023. “We believe that levers are reasonably in place for the Indian consumption story to have a broad and an organic positive outlook,” he said.
Do you think the Indian equity market to be a big outperformer this calendar year?
I think we are in a more optimistic scenario that the Indian equity markets will outperform and do well this year, especially on the back of a very subdued or flat 2022. We saw the markets go through its own set of challenges in 2022, starting with the war in Ukraine and then inflation getting out of control and interest rates hikes.
This year, we see fewer of those risks. Oil prices are now a lot more stable than the uncertainties we went through in 2022. Though we may have a little more to go on interest rates scenario, the risk has reduced dramatically.
Keeping all these factors into play, the calendar year 2023 seems very promising and hopeful. Also with the budget this year and the policy action from the government for the next one year considering that we are heading up to elections in 2024, should keep the markets in a very buoyant mode and we might see an outperformance in the market in the year 2023 unlike a subdued 2022.
What could be the focus areas in Union Budget 2023? Do you expect the government to focus on recovery in consumption?
Clearly, the focus for budget 2023 will be to stimulate and give the economy a push, considering what we have been through since the last budget in 2022. The government will of course look at revival in consumption, credit growth and sops for some sectors.
We have to keep in mind that the government themselves want to ensure that the industry does well, and it is an election year and usually there tends to be a bit of populism in the budget which cheers the market.
Overall, I think 2023 will be another year to checkout for the great Indian consumption story, whether that will play out as planned. So far, even in a very rough 2022 the Indian consumption story has held up, though not to the expectations of many market experts but still it has been a rather decent year and we hope that this year with the help of the budget and policy making we should see better times.
Do you think the broader consumption will remain weak in the current calendar year?
Well, the broader consumption story for 2023 should be marginally better because we’ve come through with a history of difficult years. We started 2020 with COVID, and then we had 2021 where we had the second wave. In 2022, when we thought we were done with COVID in 2021 and when the year just started well, we had the Ukraine war which followed with recession fears, interest rate hikes and high inflation.
Therefore, all these things factored in, we believe that the broader consumption should improve, and we need to see that coming from all the quarters between urban cities and even in the Bharat (rural) markets the consumption has to bounce back. So, while we are betting on a good year 2023, that will be largely dependent on how the consumption story does. We believe that levers are reasonably in place for the Indian consumption story to have a broad and an organic positive outlook.
How do you read the commentary by the CEO of IT major TCS? Do you expect the IT sector outlook to be weak in current year considering the changing global economic environment? Do you still advise to buy these stocks on declines?
Looking at the TCS results, to be fair we have to be happy with the outcome of the results. We know that the last one year particularly, with the way business has been in the developed markets (US and Europe), we feared shrinking of business, cutting down of orders and shrinkage in margins. But I think the results of TCS have highlighted a couple of points such as increased productivity and INR depreciation benefited in a certain way in terms of better outputs in numbers.
However, it will take a couple of months to actually realize whether the demand is going to be consistent or demand is going to slip further. But in the given circumstances, the numbers that TCS put out, considering the last three to four quarters, is something that you could live with, not as bad as what people thought it would turn out to be.
Likewise, when all the other IT majors numbers are out, you will get a consolidated sense of the demand scenario. But for now, this is a good set of numbers to begin with considering what IT has been through in the year 2022.
We have to watch for the other results to come and then take a call. The way the IT industry is right now with the sharp correction that we’ve seen, definitely the valuations are much more attractive now than what they were more than a year ago.
Having said that, are we at the bottom or are we going to bounce back from here? I think we need a few more months or maybe at least two quarters to come to that conclusion, but for now the entire IT sector is on a close watch because they could be closer to the turnaround or maybe some of them have already begun the journey of turning around. I am certain that we cannot ignore this sector, we’ll watch out for the global situation. You want to watch out for how companies and organizations in the developed markets will take to new orders and new projects.
Q: Do you see any possibility of auto sector outperforming this year?
The auto sector has gone through a volatile past and there is a whole demand issue across the board, domestically as well as across the world. While many may be seeing the demand being very robust domestically, globally there are fears of a recession and fears of lower demand.
Though we had a supply side issue with the chips and the massive transition the industry was going through from ICE engines to EV adoption, these things have already been factored in. For all you know, we may have a pleasant surprise with Auto pack coming back to zoom into 2023 with good performance.
Do you expect the Federal Reserve to complete the rate hike cycle in the first quarter of 2023?
It’s a tough call to take and I am sure even some of our wildest guesses may go wrong. However, the reasonable thing to expect is the dynamism of the Fed depending on the data they keep looking at and receiving. While most of us expect, at some level and as early as possible, Fed to top out on the interest rate hikes.
However, more than speculation and more than wishing, we have to watch out for the numbers, because the Fed will be looking for all the key indicators to take a call on whether they should be done with or they should continue, for how long and when this will actually be done with.
Is it better to bet on metal stocks for short term than long term?
Very clearly, metals are on a roll and I think it has also got to do with the dollar index cooling off from the recent highs. People are looking at the world very differently right now than what it was in 2022. However, you have to be aware that some of this unwinding can happen very quick and very fast.
While people may enjoy the rally in the metals, it’s also very important to take some profits off the table and maybe even unwind your positions. The key point to note is that gather as much as you can and make a smart exit at a time when you feel you made a decent return. Whether it is short or long term, it is very difficult to catch the metal rally. They are very swift, both on the upside and downside.
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