Arpit Jain, Joint MD at Arihant Capital Markets, in an interview with MintGenie said India has emerged stronger from the global uncertainties of the pandemic, supply chain shortages and the energy crisis in the aftereffects of war. He, however, believes talks of slowdown and recession loom and the rising interest rates will act as a dampener to the markets.
Edited excerpts:
What is your view on the outperformance of the Indian market? Can it sustain?
The current world environment is full of uncertainties, within this storm Indian economy is outperforming fundamentally. This makes India a favourite spot for investors- both foreign and domestic.
The resilience shown by domestic investors in the past year and strong consumer sentiments show the power of Indian demography. To back this, India is fundamentally strong – substantial GST collections, robust manufacturing and services PMI, and the leverage of low commodity prices have backed India’s outperformance.
Even though the growth of 13.5% was on a low base, we need to understand that India’s story is one of long-term sustainable growth. India has emerged stronger from the global uncertainties of the pandemic, supply chain shortages and the energy crisis in the aftereffects of war.
Can we say that our market will decouple from the markets like the US and China because of India's bright economic outlook?
I don’t believe that any market can decouple from global markets on a continuous or permanent basis. The macroeconomic factors affecting the global markets also affect the Indian markets. But, overall the Indian economy looks strong enough to decouple from global markets intermittently.
The ability of the Indian markets to decouple strongly depends on how proactively and effectively it reacts to the macroeconomic indications on a global level.
FIIs have been buying in the market since July. As the US is likely to see aggressive rate hikes, can we see a reversal in the FII trend?
Not likely, rate hikes are largely due to a lot of factors apart from interest rates. We must keep an eye on various global events like inflation, macro scenario etc.
FIIs inflows are not just related to the rate hikes in the US. There are multiple global events such as inflation, and crude which ties together making the overall macroeconomic scenario. With the confluence of all these factors, FIIs analyze if India remains a lucrative avenue to invest in. Yes, with the rate hikes the US investors may face a slight liquidity crunch, but I don’t think it is likely that it may affect the FII inflows to India.
IT stocks are under pressure because of worries over recession in the US and Europe. What should be one's strategy for IT stocks now? Should we completely avoid the midcap IT stocks?
The growth prospects of the Indian IT companies remain coupled with the markets in the US. Because of the rate hike announcement by the Fed, we need to assess the macro damage that will come through. When the macro is severely disrupted, companies put brakes on their IT spending towards innovation and only the maintenance work will continue. This would be a big risk for Indian IT companies that are already on high valuations.
When the major IT companies declared their results in July, they expected a strong demand pipeline. But in view of the worries around recession in the US and Europe, the clients may look to consolidate their service providers. It may be safer to stay with large-cap stocks in IT if you wish to keep IT in your investment basket.
What sectors one should bet on at this juncture? What are the sectors one should avoid?
We have a positive view of autos and auto ancillaries, infrastructure and financial sectors. With the robust demand seen in the previous months, we also see the capital goods and consumer goods sectors performing well.
Analysts are positive about the Indian economy and the prospects of the market. What, in your view, still remains a challenge for the market and the economy that we should be careful about?
The Indian economy is doing very well, analysts have gone so far as to call this India’s century. The geopolitical events and the surrounding energy crisis have led to high inflation in major global economies. Talks of slowdown and recession loom and the rising interest rates will act as a dampener to the markets.
Disclaimer: The views and recommendations are those of the analyst. These do not represent the views of MintGenie.
