Pranjal Kamra, CEO, Finology Ventures expects another 85-100 bps rate hike in the financial year 2022-23. In an interview with MintGenie, he said that market sentiments are expected to be volatile as the inflation rates aren’t expected to cool-off anytime soon. A planned investment strategy with a long-term view can help you to avoid market volatility, he advised investors. Edited Excerpts
Amid the current environment with high inflation and monetary tightening, what is your advice for new investors - Jump in or stay back?
I don’t think there is one single reason to not invest. Firstly, considering the kind of inflationary situation, it would be foolish to stay back. The interest rate hike might boost up yield in FD & debt instruments, but your equity investments can give you handsome inflation-beating returns in the long run.
How much more rate hike do you expect by the end of FY23?
Considering the inflation predictions for FY23 at around or above the upper limit of 6 percent, further rate hikes are most probably on the cards. As per various economists, a rate hike of 35 basis points in August, and 25 basis points in October and December each could be expected, taking the count to 85-100 basis points more in FY23.
Will the upcoming rate hikes lead to a strong market correction or will it be priced in?
Considering the almost decadal-high inflation rate, the rate hike didn’t come as a surprise. It was most probably already factored in the recent correction. As the inflation rates aren’t expected to cool off anytime soon, market sentiments are expected to be volatile, and more inclined towards pessimism, in the months going ahead. However, a planned investment strategy with a long-term view can help you to avoid market volatility.
What are your views on the June monetary policy review?
In a bid to curb inflation, the RBI hiked the repo rate by 50 basis points to 4.9 percent. Apart from the rate hike, encouraging moves have been taken to promote digitization like linking of credit cards with UPI & increase e-mandate limits. All these measures including banking tweaks to promote affordable housing seem to be unorthodox and practical, with the RBI playing its central bank role almost perfectly.
In this rate hike environment, which sectors do you advise investing in and why?
Asset-heavy businesses like automobile, capital goods, real estate and banking sectors are interest-sensitive, and thus they may witness profit and margin instability in the near term.
Whereas companies in consumer staples, pharma & healthcare are considered defensive and thus are expected to have acomparatively lesser impact. Investors can make investment decisions accordingly.
Can the rate hike hurt demand and credit growth for banks?
Interest rates alone do not affect the credit growth of banks. Factors such as income growth, agricultural production and capex cycle also have an equal impact on credit demand. After a long break, the capex cycle is finally expected to revive now. Though a few companies could slow down their expansion plans, companies that are operating at peak capacity would have to go for capex irrespective of the interest rate scenario. That is why banks might not experience credit degrowth as much.
Do you have any preferred stocks to suggest to long-term investors?
We have a mid to long-term investment strategy and don’t generally go for momentum-based investing. That is why macroeconomic movements aren’t sole investment decision makers for us. Hence, we prefer not to suggest stocks for this dip. However, if you are looking for defensive sectors to invest in, you can go for consumer staples, pharma, healthcare, etc.
How long-term investors should change their portfolios in order to include the new monetary tightening environment?
Long-term investors should not worry about macroeconomic events such as rate cut or rate hikes as the impact is very short-lived. To fight volatility, one should target a well-diversified portfolio across asset classes, sectors, and companies, so that the investments remain least affected during market cycles. Additionally, you should review and rebalance your portfolio once every 2-3 year.