Inflation is expected to peak this year and rate hikes will pause for a while before the rate cuts subsequently as the central banks assess the evolving macroeconomic situation, said Anil Rego, Founder and Fund Manager at Right Horizons PMS. In an interview with MintGenie, Rego said he was optimistic about the building materials demand outlook due to increased investment towards infrastructure, urbanisation, and a recovery in the housing and commercial real estate markets.
Fed has raised rates on expected lines but gave mixed signals on rate hikes in the future. What is your assessment of the trajectory of future rate hikes?
Post the collapse of two banks in the US, the Fed has decided to take a smaller hike of 25bps.
We expect the rate hikes to pause as any further aggressive hikes will increase worries of the contagion effect of a collapse in the US banking system and trigger a confidence crisis that may lead to severe implications.
We expect the fed funds rate to remain at peak levels and start declining by the end of the year.
Inflation is expected to come down and rates may also be trimmed in the later part of FY24. How will that impact the market? What is your overall view of the domestic market for FY24?
Across economies, central banks were infatuated with inflation, taking an aggressive stance since 2022, augmenting concerns over a recession.
This year inflation is expected to peak and rate hikes to pause for a while before the rate cuts subsequently as the central banks assess the evolving macroeconomic situation.
This is positive for equities in general, even more so for a domestic economy that has been fundamentally strong and poised for multidecadal growth. We expect markets to do better from hereon and quality mid and small caps to outperform.
What are your preferred sectors for investment at this juncture? Please explain your views.
We are optimistic about the building materials demand outlook due to increased investment towards infrastructure, urbanisation, and a recovery in the housing and commercial real estate markets.
In the Budget 2023-24, the government has proposed to increase the funds for PM Awas Yojna by 66 percent, making it ₹79,000 crore, boosting the pace in affordable segment housing in India.
Additionally, the government has proposed investing heavily in transport infrastructure projects benefitting the real-estate markets across India, especially in tier-2 and tier-3 cities which will benefit the sector.
We are optimistic about the banking sector as the credit growth momentum has been robust, driven by the traction in the retail and SME segments.
Home loans, auto loans and credit card outstanding continue to grow well, and corporate loans are recovering gradually, led by CAPEX demand.
The banking sector is expected to continue reporting healthier earnings led by loan growth, margin improvement, and lower credit costs.
We expect CV (commercial vehicles) growth momentum to continue with the government’s infra push and replacement demand and the PV (passenger vehicles) volume growth to beat the FY19 peak of 3.4 million units driven by new vehicle launches, especially in the UV (utility vehicle) segment.
The 2W (two-wheeler) ICE demand growth is dependent on the pick-up in the rural economy and export demand.
EVs (electric vehicles) will continue witnessing growth in the coming quarters as it gains traction from urban and semi-urban consumers.
Hence, we are bullish on auto OEMs (original equipment manufacturers) and ancillaries.
Value stocks have staged a comeback in the last few months. Is it time to focus only on value and not on growth?
The commonly known theory is value stocks tend to outperform during bear markets or recessions while growth takes the stage during a bullish phase or economic expansion.
We recommend that investors invest in value stocks with higher growth potential rather than restricting to a segment and moving with the trend and timing the market.
Look at the strong gains in gold prices. Is it time one should increase exposure to gold for the next two-three years?
In seeking a balance between inflation risks and economic stability, the federal reserve, after its recent 25bps hike, is expected to pause and then cut the rates based on trends and signals in the economy; these expectations are the factors that drive safe-haven demand for gold.
We expect gold to do better this year, but the preference for domestic equities is higher over the next two-three years.
In times of high uncertainty, what investing mantras should retail investors follow?
We were concerned about political and geopolitical shocks that could affect the global economy leading to tighter financial conditions or adverse effects on commodity supply and higher uncertainty.
However, our optimistic outlook on growth in the domestic economy trumped the cautious global economic outlook.
We expect equities to pick up the pace from hereon and quality mid and small caps to outperform, so investors are recommended to use these short terms dips as buying opportunities and deploy in a phased manner.
Disclaimer: The views and recommendations given in this interview are those of the expert. These do not represent the views of MintGenie.