With the monsoon picking up, there is an expectation of lower inflation numbers going forward. This has created an opportunity for commodity user sectors like consumer discretionary, FMCG, auto and cement, said Amit Gupta, Fund Manager – PMS, ICICI Securities. In an interview with MintGenie, Gupta said going ahead, FIIs' focus will be on results and future guidance. Better than expected results can revive their interest.
Edited excerpts:
Equity investors are nervous because of the rate hikes and sticky inflation. What is your outlook for the market for FY23? Do you see a possibility of Nifty giving a flat or negative return this year?
We believe major contraction is already seen in Nifty valuations and eventually buying support should lead the markets in coming quarters.
Nifty P/E was 23 times one-year forward when the index made a high of 18600 in the month of October 2021. Thereafter the market has come down, however, earnings have continued to revive.
This has led to a contraction in Nifty P/E to 18 times FY23. Historically such contraction in P/E always demands some investment from the long-term perspective.
On the positive front, with the opening of the economy as Omicron seems to be receding, the PMI services increased to 53.9 in June pointing to the strongest expansion since April 2011.
GST collections have remained above ₹1.40 lakh crore for the fourth straight month and direct taxes to ₹14 lakh crore which is almost a 48% jump versus FY21.
Investment and credit cycles are picking up. Banks have witnessed 11% credit growth from 5.7% last year.
Are you buying in this market? What sectors are you looking at? Why do you think these sectors are a good bet at this point?
We have increased positions near 15000 levels considering the valuation comfort.
The rise in the dollar and recession fears have also led to a decline in commodity prices which can limit US inflation to some extent. India imports 60% of its palm oil consumption which has corrected by 24% in June itself.
The Indian government has also imposed higher duties on wheat and steel exports and on gold imports to reduce the impact on inflation.
In India with the monsoon picking up, there is an expectation of lower inflation numbers going forward. This has created an opportunity for commodity user sectors like consumer discretionary, FMCG, auto and cement.
All of them have declined sharply and some of them have reached really attractive valuations. Some recovery can be seen in these sectors.
The majority of analysts are now advising going for value stocks? Should one bet on value or growth stocks in this market? Please explain your view.
Value is definitely emerging as the preferred segment due to relatively lower valuations. However, it is also important on which themes we are betting on. We are overweight on PLI and China + 1 beneficiaries.
We prefer large banks and NBFCs. Our focus is on rising refining margins in the energy space and an increase in ARPU in the telecom space. Also, beneficiaries of higher government capex can recover faster in the coming days.
The rupee is now at an all-time low level. What does the rupee's weakness mean for equity investors?
Sharp rupee weakness in the short term leads to further outflows from FIIs. However, at a certain rupee level, it becomes quite lucrative for FIIs to invest back in the Indian markets.
The impact of higher interest rates is clearly seen in the demand slowdown in US and Europe which is leading to risk-off sentiment.
Dollar appreciation is majorly seen due to risk-averse scenarios. US consumer sentiment index has declined lowest in the last 60 years.
India’s exports particularly in footwear and other leather goods, cotton yarn, readymade garments and handicrafts declined due to higher inventory in US retail chains. Indian exports in June rose 16.8% YoY at $37.9 bn slower than 20.4% in May.
We believe with commodities coming down, some risk-on behaviour can re-emerge which can stabilize the sentiments for some time.
Foreign portfolio investors have been on a selling spree in the Indian equity market since October 2021. For how long do you think this trend may continue? What can bring FPIs back to the Indian market?
FII outflows recently have happened due to elevated inflation in the US which is leading to front-loading of interest rates. Supply chain concerns are at the core of sticky inflation which got aggravated further with the Russia-Ukraine war.
With China opening up, we expect some relief from inflation along with the recent correction in commodities.
FII money is expected to reverse when these macro headwinds stabilize for a few months. RBI has also taken steps to shore up the rupee which can restrict some inflationary trends.
Efforts from RBI were required as forex reserves in India have depleted by $50 bn from $643 bn to $593 bn due to FIIs outflows seen in the last one year.
Also, more than 40% ($267 bn) of external debt of $621 bn is due for repayment in the coming nine months which can further pressurize the rupee.
Going ahead, FIIs' focus will be on results and future guidance. Better than expected results can revive their interest.
Disclaimer: The views and recommendations made above are those of the analysts and not of MintGenie.
