Weakening inflation may result in a pause in the rate hike cycle in the first half of the year, says Seshadri Sen, Head of Research, Alchemy Capital Management. In an interview with MintGenie, Sen said IT, pharma and capital goods look attractive at this juncture.
Edited excerpts:
Is this market still a buy-on-dips market? The concerns are not fading and, FIIs are selling relentlessly. What should be an ideal strategy?
We recommend investors stay fully invested to the extent of their equity asset allocation. Lumpsum investments can be staggered over time, but we advise against holding back for more than one to two quarters.
What should we chase at this juncture-value or growth stocks for the medium term?
Value stocks made a comeback in CY22, the first time in five years. We believe this outperformance is short-lived, and quality will come back once the pockets of egregious under-valuation have been re-rated.
The medium-term theme for the post-Covid Indian markets is earnings compounding – our preference is for stocks that meet this criterion. Of course, heavily over-valued stocks may still struggle.
Our belief is that GARP, with a quality overlay, should lead the market once the Fed pauses rate hikes.
How do you see the earnings of IT stocks? There is a pause in hiring, but many companies are giving fat compensation to retain talent. What does it indicate? Should you increase or trim our exposure to the sector?
We believe IT sector earnings will stay resilient.
Topline growth has largely held up – while it could slow somewhat in CY23, it would not be significantly worse than long-term trend rates.
On the other hand, margins should start to recover as the worst of wage cost pressures seem to be done.
Inflation is easing but still remains at uncomfortable levels. How do you see the Fed hikes scenario evolving? When can we expect a pause?
The Fed’s tightening cycle should end in the first half of the calendar year 2023 (1HCY23), in our view.
This would be driven by the weakening impulses of inflation that are visible across many variables.
There are a few moving parts in the short term, though.
For example, we think the opening up of China’s economy could create some inflation uncertainty in the short term.
Winners change as cycles change. What sectors may lead the rally if we see one after Fed pauses rates? Is there a chance of a rate cut in 2023?
We believe high growth and quality could bounce back in 2023 if the Fed pauses. We are positive on IT, pharma and capital goods.
What could be the top theme of Budget 2023? What points should investors focus on?
We expect the government to start the path of fiscal consolidation in this Budget. This is positive for the economy in the long term but may introduce some short-term stress on growth.
The key to countering this would be improving spending quality by focusing on capital expenditure versus consumption.
What is your view on the Indian economy? What could be the impact of a recession in the West on us?
We remain constructive on the Indian economy, focusing on two main pillars: growth and financial stability.
Growth could slow off the high base of CY22 but it would remain resilient and prove the pessimists wrong by consolidating at nearly 6 percent.
The other positive is that financial stability conditions should improve as rate hikes pause and the pressure on the currency recedes.
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
