As markets enter 2023-24 (FY24), Rahul Arora, chief executive officer-institutional equities at Nirmal Bang, believes that foreign flows will chase relative growth outperformance in FY24, and India will stand out basis of that. In an interview with Busines Standard, he stated that FPIs should come back in a material way towards the last quarter of FY24 once the Fed starts sounding incrementally more dovish, or perhaps even cutting rates.
The next six to nine months can be challenging from an FPI flow perspective, as we are looking at risk aversion in the face of an impending US recession or a material slowdown, he added.
Talking about the Finance Bill amendments, Arora said that the government’s move to tinker with the Bill at the tail end of 2022-23 was a touch discomforting, but the markets have now absorbed the development and moved on.
Commenting on the macroeconomic concerns, Arora told BS that there is not much reason to be overly pessimistic about rate hikes and inflation incrementally from here on.
"The US Federal Reserve (Fed) and the Reserve Bank of India (RBI) should hike once more by about 25 basis points each. Inflation in India is likely to moderate to 5 percent for FY24. Given the pace of interest rate hikes that have happened over the past 12-15 months, the probability of a US recession is reasonably high but likely to be short and shallow," he said.
While it is always difficult to time stock-buying, one could maybe wait for the next round of earnings before taking a definitive call. We could potentially get better prices then, he suggested investors.
But from a margin perspective, Arora highlighted that the worst is behind us. Crude oil and other commodities — by and large — are far more comfortably placed today than they were a year ago, or around the time the Russia-Ukraine war began, he noted.
He is overweight on cement, road construction, pharma, commercial vehicle, and gas stocks, and selective on banking, agrochemical, and consumer discretionary. Meanwhile, he has a major underweight call on IT.