VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, believes there is no scope for high returns in the rest of 2023. In an interview with MintGenie, he stated that a favourable market scenario is likely to emerge only in early 2024. He further pointed out that investors need not bother about elections. The election outcome, whatever it might be, is unlikely to have a lasting impact on the economy and markets, added Vijayakumar.
Edited excerpts:
With US bond yields on the rise, what is the outlook for yields from a 6-month perspective?
US bond yields have been steadily rising in recent days with the 2-year yield rising to 5 percent and the 10-year hitting a 16-year high of 4.35 percent. Expectations that the Fed will move again to hike rates to rein in inflation triggered this spike in yields. Future trends in bond yields will depend on the incoming data on inflation, which, in turn, will determine the Fed’s stance and policy rates. If the decline in inflation is lower than expected, rates will remain higher for longer, and consequently, yields also will remain firm. This will have implications for yields in India, too. With the July CPI inflation spiking to 7.44 percent, a rate cut by the MPC is off the agenda now. A rate cut may happen only by mid-2024.
How will this impact one's portfolio? What changes do you suggest an investor should make to counter the rise of bond yields?
Rate sensitives will be impacted by the rising yields. Fixed-income assets have turned attractive now. Investors may consider increasing their exposure to fixed-income assets. However, investors should remember that the situation can change suddenly. A better-than-expected decline in inflation and a steeper slowdown in growth can turn the Fed less hawkish. This, in turn, can bring the yields down.
Is 2023 going to remain a year of moderate returns or will we see more record highs in the future?
There is no scope for high returns in the rest of 2023. A healthy rally can sustain only when global economic growth revives, and the macro environment is favourable for a rate cut, which, in turn, requires inflation to moderate. Such a favourable scenario is likely to emerge only in early 2024. So, investors need to expect only moderate returns in 2023.
This year has been good for IPOs with many new IPOs already in queue to launch. What should be one's strategy while looking at new IPOs? Should they stay away or buy more?
Investors should be selective in applying for IPOs. Retail investors should apply only for reasonably priced IPOs. There are some OFSs (Offer For Sale) where promoters/ earlier investors will be looking to exit by offloading stocks at a high premium. Such offers should be approached very cautiously.
Midcaps and smallcaps have ruled this year. Should investors shift priorities to broader markets than bluechips for better returns this year?
Mid and smallcaps are risky in the short run but they outperform in the long run. Presently mid and small-cap valuations are a bit stretched. That’s why many small-cap funds have stopped accepting lumpsum investments. This is a red flag. But SIPs in this segment can be continued if investors have a time horizon of more than three years.
With next year's election in mind, what would you suggest as a new investor?
Investors need not bother about elections. The election outcome, whatever it might be, is unlikely to have a lasting impact on the economy and markets.
What is your outlook on the recently listed Jio Financial Services? How will it impact the BFSI space?
JFSL’s pedigree and potential for phenomenal growth are positive. It is too early to say how disruptive the company will turn out to be.
What are your sector preferences in this market?
Our sector preferences are banking/financials, capital goods, automobiles, and construction.
What were the biggest hits and misses of the June quarter earnings?
The biggest hit was financials. The misses were, expectedly, IT and metals. In autos, the passenger vehicles segment is witnessing robust growth. The pharmaceutical space is also staging a comeback.
Do you see the Fed continuing to raise rates in the next policy or is this the time they hold?
Fed decision is always data-dependent. One more rate hike is likely and a hold thereafter.
