The US
Fed appears to be the biggest
trigger for the market at this
juncture. Even a small cue regarding
the rate hikes influences the mood
of the market. Why has the market
failed in fully discounting rate
hikes?
I feel that
India has decoupled quite noticeably
from the US markets. Hence, we don’t
place too much importance on what the
Fed’s next move will be.
Fed increased
the base rates eight times last year,
taking it up from 0.25 percent to 4.5
percent.
They did not
deviate from the expected lines except
once. The current plan is to take the
rates up to 5 percent in 2023 and then
keep it steady at that level.
Further, in
the US also, inflation has started
trending down and thus, eventually, a
growth focus would emerge.
Having said
that there might be a few short-term
reactions to the numbers that emerge
from the US markets but investors should
not worry too much about it as the
long-term performance of the Indian
markets is still going to be driven by
the strong domestic factors we just
discussed.
What
are your views on the early trends
of IT earnings? Is the worst behind
for the sector?
The leading IT
players have seen positive results in
terms of revenue growth, surprising the
market. However, a lot of these gains
come from pre-existing deals rather than
new ones.
The current
demand environment is uncertain, due to
budget cuts and decision delays at the
clients' end.
It is
difficult to say how well the companies
will do in the future based on their
performance in the past quarter.
There is a mix
of factors at play when it comes to
margins. For example, attrition rates
have been decreasing while utilisation
levels are on the rise.
However,
travel costs are going up, along with
increased costs of sub-contracting and
pay hikes are putting pressure on
margins.
We believe
that while the sector valuation may have
corrected, it still remains elevated
compared to long-term averages.
So, while we
don't have a blanket positive view on
the sector, we think that bottom-up
stock picking can be a good strategy,
where exposure towards regions and
segments they operate in will be the
main criteria for our stock
selection.
We
have seen strong gains in banking
stocks. Since most positives about
the sector are already on the table
and the valuations have also jumped,
are we near the end of the bullish
trend in the banking
sector?
End? On the
contrary, I believe that the Indian
banking story is just getting
started.
We are
projected to grow from a $3 trillion
economy to $5 trillion in the next
three-four years and then to a $10
trillion economy in the next 10-12
years.
We are talking
of a good 11.5-12 percent CAGR growth in
nominal terms.
What
are your expectations from the
Budget for 2023? What should retail
investors watch out for in this
Budget?
The FY24 Union
Budget should remain focused on
pro-growth initiatives such as continued
investment in infrastructure and
capacity development.
Also, since it
will be an election year, the government
may announce some benefits and policies
aimed at the rural sector to boost
languishing demand.
Although we
cannot expect significant fiscal
consolidation in this Budget, we hope
that the government provides a clear
glide path to achieve the fiscal deficit
target of 5-4.5 percent by FY25 or
FY26.
