Santosh Joseph of Refolio Investments
Renewables has to be a global theme because it just cannot be that one country will invest in renewables and the other countries won’t. I guess this theme will be more systemic across the board theme, Santosh Joseph, CEO and Founder of Refolio Investments says in an interview to Moneycontrol.
Coming to defence, there is a reason to believe that while renewables is a global theme, even defence is a good domestic theme that has a long runway, he said.
Santosh, a financial services professional with over 20 years of experience in asset management, banking and insurance, thinks one of the most important and fundamental headwinds for the government is any significant drop in earnings.
Do you think the recovery in IT stocks may be longer if Fed remains hawkish this calendar year?
With the Fed remaining hawkish and this is more likely to continue for a good part of the year 2023, the IT stocks will have a bit of a challenge. But I think we have to look at it from a slightly broader perspective that they have certainly come off the crazy valuations of 2021 and early 2022.
From a valuation perspective, they seem a lot better today than they were about a year and a half ago, and even though IT may not run up immediately, the valuations definitely do make a case for people who are looking from a slightly broader time horizon to consider investing in the IT sector, both domestically and globally.
Is it the time to prefer themes which do not see any impact of interest rate movement?
Well, it’s every investor’s dream to invest in stocks that are not negatively impacted by interest rate moves. But I think currently the themes that will be playing out which are going to be sensitive to interest rate themes possibly offer attractive opportunities because we know that inflation has now moved from being rising inflation to sticky inflation and at some point of time, in the next one or two quarters it’s going to start looking to trend lower.
With this situation in place, I think it is better to buy sectors and themes which will benefit from this turnaround and not just the sectors which are going to be immune but also the sectors which are going to benefit six or twelve months down the lane from a cooling off rate scenario.
Do you see any big trigger for the market at current juncture?
The big trigger in the markets is the way you see how the inflation plays out and if the earnings start looking better, especially the March earnings, when they start coming in the next one or two months.
Currently, markets in India are not run up as much as the rest of the developed markets are concerned. Therefore there is a positive trigger that markets will catch up with how globally the markets have performed. The positive trigger here could be the return of the FIIs and no black swan that could derail the trajectory of the equity markets.
Do you think other central banks including RBI may be forced to stick to higher interest rates for longer, considering the Fed commentary?
The war against inflation is not going to be let off in a hurry. Whether it’s RBI or any of the central bankers around the world, they are going to keep an extremely watchful eye because all the efforts of the past year and a half cannot be watered down when you quickly stop or reverse the hawkishness that is being maintained thus far.
Therefore, I think RBI will do well to continue their stance till they see a very tangible and visible cooling off of inflation. They may actually take things a lot slower than what many people expect because they want to ensure that the inflation numbers are well within their comfortable limits to start looking dovish in this scenario.
Do you think defence and renewables themes are part of global investment cycle?
Themes such as renewables and defence are today becoming a hot subject around the world and rightly so as the world moves towards more sustainable energy, renewables will be in the limelight. This has to be a global theme because it just cannot be that one country will invest in renewables and the other countries won’t.
I guess this theme will be more systemic across the board theme. Therefore, though it may be a little slow in some countries, a little fast in some countries, it is definitely a theme of the present and the future.
Coming to defence, I think this is another sector where especially a country like India will invest a lot more into these themes and we’ll see these sectors growing because as a percentage to GDP both the defence sector and the defence outlay by the government is lower compared to the rest of the developed world. Therefore, there is a reason to believe that while renewables is a global theme, even defence is a good domestic theme that has a long runway.
What is the one big challenge for the market and economy in FY24 considering the current global and domestic environment?
I think one of the most important and fundamental headwinds for the government is any significant drop in earnings. We know that the markets are forward-looking and as we are expecting softer to lower rates in the future.
But I think you’ll have to also give serious thoughts into how the earnings numbers are going to be coming out quarter after quarter, and the biggest variable that we are going to look forward to is if the earnings are sustainable, if the earnings are growing and if there is overall momentum in the macro environment.
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