Mark Matthews, MD of Julius Baer, believes the market can sustain at a higher interest rate since the economy is strong.
In an interview with ET Now, he said that the market will not collapse just because inflation is high and is coming down at a slow pace.
"Inflation is high but it is slowly coming down on a year-on-year basis and so I do not think it is enough to really cause the markets to collapse. But it does mean that the rates are still on the uptrend. The Fed funds rate which is currently at four and three-quarters could go to five-and-a-half. The market can live with a 5.5 percent Fed funds rate because the economy is so strong," Matthews told ET.
Matthews also added that the housing component of the inflation indices may start to decelerate because the real-time data in the housing market has been softening since June last year.
He said that the year 2023 could be a decent year for the S&P, perhaps even a very good year but the period of March, April, and May is a seasonally weak one and the stocks see volatility.
"The fact is we are up 3.5 percent this year. If you annualise that, it is over 20 percent and so we should not be displeased by the performance of the S&P so far this year. But it will be choppy until there is more certainty that inflation is on the decline," said Matthews.
Matthews is positive about the Indian markets, thanks to its healthy macroeconomic outlook.
"The economy is in good shape. Earnings will be strong, I see no reason why the market cannot do well this year even though it is down 3 percent," Matthews told ET Now.
"It is just the nature of the equity market that it does not always go up in a straight line but over time, it tends to go up. It does not bother me that the Indian market has been flat on an 18-month basis or is down a little bit so far this year," Matthews said.
Talking about the Adani Group saga, Matthews said such incidents have happened in many other markets also but the market goes on.
"This particular event will move into the rear-view mirror. I suspect it already has for the broader market and the market will begin increasingly focusing on the economy, inflation and things like that," said Matthews.
For the IT companies, Matthews said the companies with strong cash flows and secure business models will see a share price recovery and those that do not have strong cash flows and secure business models, will not.