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In the short term, “One has to be a bit cautious on the equity markets as going forward it may not be a year of broad-based performance and would rather be a sector or stock-specific market,” Nitin Agrawal Torus, Oro PMS CEO, said in an interview to Moneycontrol.
With a key government focus on Atmanirbhar Bharat, he is bullish on PSU companies, mainly related to defence and metals and mining sector.
Some PSU Banks with healthy balance sheets also look interesting and are poised to grow further, said Agrawal, who has more than 12 years of experience in portfolio management and investment banking.
Q: Will the Federal Reserve end the rate hike cycle with one more fed funds rate hike, though inflation is elevated?
US inflation reached a peak in June 2022, and then started falling every month till July 2023. The July-August inflation number spiked again and sparked the debate – a) whether the Fed will keep hiking rates further or b) whether there would be just one more hike and then Fed will take a pause.
During Jackson Hole, US Fed had re-iterated its approach to be data-dependent for further policy actions. The core CPI has been sticky but not showing signs of further rise. Most of the rise in inflation is coming from volatile fuel and energy prices. Also, the recent employment numbers are showing some signs of cooling off. We believe most of the hikes are already undertaken, which may take some time to reflect in the real economy. Thus, the US Fed is likely to end the rate-hike cycle with one more hike and then take a pause, closely monitoring underlying data for the next several months before taking any further policy actions.
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Q: Do you think the rising oil prices will again play a spoilsport for the global markets or is it is the temporary rally in the prices?
Crude has been volatile over the past several quarters on account of global growth dynamics. Post covid, the economy was expected to run on full steam which led to a rally in crude prices initially. However, the rally lost steam when global interest rates started rising leading to expectation of recession. Weak growth in China further led to downward pressure on fuel prices.
Post sanction on Russian oil, the crude again began its upward journey as one of the major suppliers was restricted from the market. Due to supply issues, the US started drawing oil from its Strategic Petroleum Reserves (SPR). Lower crude affects the OPEC+ economy negatively which led OPEC+ to cut production to support crude prices. Saudi Arabia and Russia extended further voluntary cuts which led to the recent rally in crude prices.
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Thus, with tighter supply, extended cuts by some members, US SPR at 40 years low and improving macro-economic sentiments, we believe that crude prices may further rise from the current levels.
Q: Where do you want to park your money among sectors in the PSU space?
PSUs have been one of the most important contributors for alpha generation for money managers in the recent past. The S&P BSE PSU index clocked ~30 percent CAGR over last three years compared to mainline indices generating only ~10 percent CAGR. With a key government focus on Atmanirbhar Bharat, we are bullish on PSU companies, mainly related to Defence and Metals and Mining sector. Some PSU Banks with healthy balance sheets also look interesting and are poised to grow further.
Q: IT space has gradually been rising after bottoming out in April this year. Any major reasons that backing the rally and will the uptrend continue even after Q2FY24 earnings scheduled next month?
Earlier in the year when global banks were under pressure, IT stocks went down. It was expected that there would be budget cuts by US/Europe banks which may lead to slower revenue growth for Indian IT companies. As the global banks started performing better, even the IT stocks started rallying.
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We believe there are short term headwinds, but we are bullish on IT sector in the long term especially the nice IT companies. AI and cloud migration will be a theme that will play out over the long term which will be positive for IT companies.
Q: Is it the time to start focusing on largecaps over midcaps and smallcaps?
We have witnessed one of the best risk-adjusted performance of mid and small cap stocks over the last six months. Nifty 50 Index is up 11 percent over the last year versus Nifty Midcap 150 Index, which is up by 23 percent.
Given the recent rally, it is likely that there will be a shift towards large cap stocks again in the short term. However, the mid and small cap space is still attractive, and there are many mid and small cap stocks with structural tailwinds where we could see a sustained rally going forward.
Q: Further, is it time to be cautious on the equity markets?
Nifty50 valuations are still below the five-year average levels. There are a lot of inflows coming into Indian markets. Retail investors are consistently investing $2 billion per month via SIPs. EPFO is also looking to increase their equity allocation. FPI inflows this financial year has been over $17 billion and expected to continue to increase as Indian economy is relatively well-placed vs other emerging markets.
So, from a long-term horizon, Indian equity markets are still one of the best asset classes to invest in. In the short term, one has to be a bit cautious as going forward it may not be a year of broad-based performance and would rather be a sector or stock-specific market.
Q: One sector that you would love to buy on deep correction….
We believe the manufacturing sector is going to do well in the coming years. The government has set a vision to increase the contribution of manufacturing in GDP from the current 17-18 percent to ~25 percent. We have also seen some green shoots in terms of PLI schemes, more participation from global players, India’s opportunity to become Factories to the world, China+1 theme etc.
Though the sector has got a good runway for growth, many companies have witnessed a sharp run-up in prices and thus, we would like to add some names in this sector if we can buy them at a good margin of safety.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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