Post the expected 50-bps rate hike on September 30, Dr Mohit Batra, Founder & CEO, MarketsMojo expects another 25-35 bps rate hike in the December policy. In an interview with MintGenie, Batra opined that the Indian market is likely to perform exceptionally well going ahead. He recommends allotting only 10% of your money in cash and the balance 90% towards equity. Edited Excerpts:
Your views on the RBI Policy and Do you see more rate hikes in going ahead? By Dec 2022, how much more hike do you see
RBI's rate hike of 50-bps suggests that it has taken a safe approach given how advanced economies’ central banks have gone on the record that they will be doing more aggressive rate hike even if it amounts to the cost of growth in the economy. To protect the rupee, the RBI had to take a slightly aggressive route and hike the rate of interest by 50 bps.
Taking a cue from how Central Banks worldwide have hiked interest rates, and based on incoming data, the RBI may hike interest rates anywhere between 25-35 bps on 7th Dec 2022.
Global jitters have spooked the Indian markets since the US Fed hiked rate for the 3rd time. Will this pain continue or will we see a rebound soon?
We opine the Indian market will perform exceptionally well. And we also think there will be a decoupling between the US and the Indian equity market, which has been evident until September 2022. As we advance, we expect a similar trend to play out. When the US Fed hiked the interest rate by 75 bps, first in June and again in July, on both occasions, the Indian equity market moved up. The third-rate hike, however, spooked Indian markets. But it could have been perceived as a reason to correct.
Post-June 2022, Indian equities have had a good run. Going forward, we reiterate our faith in India's growth story. It would bode well for Indian investors not to be swayed by global market sentiments or incidences in the developed economy as the Indian market is poised to chart its growth trajectory.
For instance, the MSCI Emerging Markets (EM) Index, which includes India, fell about 21.8% in the 12 months to 31 August. But MSCI India Index declined just 3.17%. This goes to show how India is outperforming. Hence, we don't see much pain in the future. So whatever pain we experienced in September is already through.
At what level do you see Nifty at Diwali? What will be the support and resistance levels for the benchmark around that time?
We don't view the market on a month-to-month basis. Instead, we believe that India's growth story is intact, and that India will be the outlier in the world's gloom and doom scenario.
Considering these factors, we will zoom out and view India’s progress from a 5-year perspective. We believe the Nifty could be in the region of 37000 in the next five years. Similarly, the Sensex could be in the range of 1.25lakhs. Zooming in a one-year scenario, we opine that Nifty could yield a 15-16% return from the present level.
In this environment, what should be the best instrument to protect capital – cash, equities or bonds?
When it comes to protecting capital, investing in bonds may not be the right approach as in the rise in interest rates, bond values declines.
Cash remains an obvious choice. But as an investor, it may not be wise to place all your money merely to protect capital. Creating wealth involves taking calculated risks. The logic of capital protection must apply only to a small portion and not 100% of your capital. If you can earmark 10-15% of your total funds towards capital protection, you may want to allot the remainder in equity.
The problem occurs when we consider equities for the short-term. The moment you expand your investment horizon in equities, it is seen that equities remain the best asset class to create wealth. Therefore, we recommend allotting only 10% of your money in cash and the balance 90% towards equity.
What trends are you looking to profit from with the upcoming festive season in mind?
Festive seasons are part and parcel of India's culture. Hence, building a story around that may not be appropriate because these events are known to the market. The market has already factored in the valuation. Given the festive season around the corner, FMCG and consumer-durable companies may do well, but viewing only these sectors may not be the appropriate way to invest.
In our opinion, the defense sector appears promising, while auto and auto ancillaries may do well. We believe the CAPEX cycle will return strongly, and the capital goods sector should also be a good performer. In these four sectors, we see a lot of value opportunities for investors to make money.
5 top stocks you would advise investors to buy for Diwali?
ITC, Bharat Dynamics, CERA Sanitaryware, Blue Dart Express, and Tube Investments
How to spot potential wealth creators of the future? What filters do you use?
MarketsMojo employs hundreds of filters to spot wealth-creating stocks with numerous checks and balances that analyze stocks across the spectrum. We also emphasize the consistency of performance rather than quarter numbers.
Everyone has data, but what is critical is how one applies data analysis to derive logic and analysis. At MarketsMojo, we fine-tune our data to ensure it is relevant to changing market conditions. We believe data analysis must be dynamic to suit changing market conditions and bring meaningful alpha to our investors' portfolios.
Has IT fallen enough to be bought again? Between banks and IT which sector would you pick?
Yes, you are right. We believe IT has fallen and is now the worst-performing sector in 2022 just as we had predicted rightly so. However, we are very close to the results season and are awaiting IT companies to declare their numbers that will help us understand their growth trajectory and attrition rate. If the commentary is adequate, Indian IT companies should do well. But, if, for some reason, the Indian commentary does not present good news, the sector could underperform for another quarter.
Since we are very close to the results reason, we would prefer to wait and watch, listen to the commentary management outlook, and then take a call on the IT sector.
Regarding banking, we had voiced our opinions on how the risk-reward ratio does not lie in banking stocks, barring one or two banks. Hence, we prefer to apply the wait-and-watch approach to banks as well.
As interest rates rise, banks could face higher NPA, and the loan growth book could come under stress. Banks’ credit deposit ratio has also risen significantly. As a result, growth in the banking sector would come at a higher credit cost. And that could be a high cost of borrowing for banking in terms of CASA and fixed deposits, which could impact their NIM. As a result, banking as a sector could suffer from 3 risks: higher NPA, slower loan book growth and lower NIM.
What is your take on the defense space? Is it a good opportunity?
Since 2022, we have maintained that defense is the place to be. And we have been proven correct. We believe the defense sector is a recession-proof industry, and given the geo-political situation, demand for defense will keep increasing. India has set up a very ambitious target for the export of defence, which would act as a tailwind for domestic manufacturers.
India's mission is to be Atmanirbhar, and in that endeavour, the government is focusing on defense products, ancillaries, and spare parts from the domestic manufacturer. This offers an excellent opportunity for defense companies to do exceptionally well. When we look at the order book position of some defense companies, they have been increasing quarter after quarter, clearly suggesting that demand is highly robust in the defense sector.