 "Vinit Sambre, head-equities, DSP Mutual Fund")
Vinit Sambre, head-equities, DSP Mutual Fund
As India Inc prepares to unveil its financial performance for the September 2024 (Q2-FY25) quarter, market movement going ahead will likely depend primarily on earnings growth, said Vinit Sambre, head-equities, DSP Mutual Fund, in an email interaction with Shivam Tyagi. Edited excerpts:
What’s your understanding of the market currently with brewing tensions in West Asia?
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The recent market pullback following an extended bull-run should not be mistaken for a bear market. It is a minor correction after a significant rise in valuations. Several factors have contributed to this pullback, including escalating tensions in West Asia and a slowdown in earnings growth momentum compared to previous periods. Additionally, optimism around a potential Chinese market recovery, driven by expectations of stimulus after a prolonged downturn, has played a role.
The major concern arising from the West Asia tensions is the potential spike in crude oil prices, which could disrupt the Indian economy as the country is a large importer of crude. Rising oil prices can drive up inflation and worsen the trade balance. If tensions escalate further, it could lead to an uncontrollable increase in oil prices, hence market sentiment may remain subdued for some time.
Do you see a rally if the war stays local? Which sectors are you betting on in India?
It’s reasonable to expect some market pullbacks driven by sentiment. Anyways, with strong domestic liquidity from both institutional and retail investors, dips are likely to attract buying at more reasonable levels. Therefore, it doesn’t appear that we are heading toward a prolonged bear market, as smaller corrections will likely be seen as buying opportunities.
Outside of banks and insurance, few sectors are trading at reasonable valuations. However, we see potential in consumer discretionary, as the sector has experienced a slowdown in business momentum but could recover due to favourable monsoons and rising income levels among middle- and lower-income groups. Additionally, the healthcare sector is growing at a solid pace, and we are optimistic about its long-term growth prospects.
What kind of correction can we expect – time or price-wise dip?
There are two key points to consider right now: valuations and earnings growth. Indian markets have experienced substantial gains over the past few years, resulting in elevated valuations across various metrics. Some of these gains were well-deserved, driven by strong earnings growth across a broad range of sectors. However, after this period of rapid expansion, earnings growth now appears to be moderating.
With limited room for further valuation expansion, future market gains will likely depend primarily on earnings growth. Given the anticipated slowdown in earnings momentum, we expect the markets to undergo a phase of consolidation, or time correction. However, I don’t foresee sharp, deep market declines, as long-term investors will likely seek opportunities to participate in India’s growth story, which remains strong and intact.
Apart from West Asia, what global triggers can trigger a bullish or a bearish move for the Indian market in near to mid-term?
We need to closely monitor the US Federal Reserve’s stance on interest rates, as it significantly influences global markets. Although global inflation has remained relatively stable, caution is warranted due to the implementation of trade barriers by many countries, which could lead to inflationary pressures in the future. Furthermore, commodity prices have become increasingly volatile because of these trade restrictions and ongoing geopolitical uncertainties.
Looking at the recent Reserve Bank of India’s (RBI’s) policy decision on interest rates, what is your reading of the rate cut situation taking in account the health of the economy?
CPI is well below the hard 4 per cent target. Core- CPI has been sustainably coming down. Demand indicators are in the red- urban and rural demand both, especially with the recent high in food prices. However, while another argument stays around the robustness of India’s GDP, it has undoubtedly been growing at a relatively higher pace, but it remains below its potential.
Traditionally, the risk of high growth translating into inflation intensifies when an economy operates at full capacity. But, with India’s potential growth on the rise and current real interest rates relatively high, there might be a larger cushion to absorb rapid growth before inflationary pressures emerge.
Therefore, the current conditions are conducive enough for a rate-cut cycle and have been so for quite a few months now. And with the Fed cutting rates, we have enough reason ‘now’ to implement a modest rate cut, if not as steep as the Fed. Furthermore, with the reconstituted Monetary Policy Committee (MPC), there is even more possibility for a fresh perspective to the monetary policy stance.
First Published: Oct 14 2024 | 12:22 PM IST
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