Harish Krishnan of Kotak Mahindra Asset Management Company
“We do think, it is more likely to be a soft landing in the US, given the resilience of corporates and consumers there. Therefore, the medium-term outlook remains quite strong, and we would be looking to buy into current uncertainty in the IT space,” Harish Krishnan, Senior VP & Fund Manager (Equity) at Kotak Mahindra Asset Management Company says in an interview with Moneycontrol.
On the equity markets, Harish with more than a decade of experience in equity research and fund management feels while being an election year, markets are likely to see elevated volatility.
He advised investors to use this volatility and cyclical aspects to increase allocation to equities from a medium-term outlook.
Do you think this is not the right time to bet on technology space?
For sure, there are near-term uncertainties with respect to the spending climate of clients of IT services as fears of a global recession loom. However, we do think, it is more likely to be a soft landing in the US, given the resilience of corporates and consumers there.
Therefore, the medium-term outlook remains quite strong, and we would be looking to buy into the current uncertainty in the space.
Do you think the central banks need to look at different tools to fight inflation?
In our opinion, the current global inflation stems from fiscal policies (lower immigration, free money transferred to accounts of all citizens during the Covid-19 pandemic etc), which entail that a lasting solution to global inflation needs to be a coordinated policy between both fiscal and monetary policies. For e.g., improved immigration trends can help cool off the labour market in a better fashion than using the brute force of monetary tightness.
Will the Q4FY23 be challenging for most consumer names?
There has been a significant deceleration in consumer trends post the festive season in India, as seen in Q3FY23 results. There may be multiple reasons attributed – elevated inflation levels or cool-off post-revenge consumption, among other factors. While there is likely to be some benefit in cooling off raw materials, helping improve gross margins, volume traction in sales is the key to watch out for.
What is your view on Q3FY23 and do you expect a similar kind of performance in Q4FY23 earnings as well?
For the broader markets, ex-financials, Q3FY23 was a soft quarter. Volatility in commodities (leading to accounting losses) and slower sales (especially in consumer-oriented companies) impacted the overall numbers. However, compared to Q2FY23, which saw a significant contraction in margins, there was a reasonable clawback of margins on a sequential basis.
Financials had a strong quarter buoyed by strong credit growth, improving NIM as well as lower credit cost – almost picture-perfect across all three dimensions. B2B businesses focused on the investment cycle continue to report strong earnings.
We expect margin improvement in Q4FY23 (assuming current commodity prices stay here), while sales (especially in consumption-oriented sectors) stay a bit soft, and the investment cycle and financial continue to remain resilient for now.
Your take on power sector?
There are reforms on the anvil, especially on the distribution side, which can help create a sustainable value chain in the power industry from equipment players to generation to transmission and distribution.
Having said this, being a regulated industry, it will be important to see sustainable value creation by various players over a period of time, and so we will want to see the regulatory landscape to assess the attractiveness of the power sector.
Your outlook on equity markets?
Valuations have moderated over the last 18 months, and have reached close to long-term averages. While being an election year, markets are likely to see elevated volatility. We would advise investors to use this volatility and cyclical aspects to increase allocation to equities from a medium-term outlook.
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