We were not impacted by inflation as much as some of the major economies, and we have hardly seen a slowdown which went well for the Indian economy in 2022, said Arpit Jain, Joint Managing Director, Arihant Capital, in an interview with MintGenie. He shared his views on the performance of the Indian market in 2022.
In your last interaction with us, you sounded optimistic about the Indian market's outperformance. Has the market been able to meet your expectations in 2022?
We believe in the India story. In our last conversation, we discussed that we are optimistic about the prospects of the Indian economy and it's going to outperform over the medium to long term.
After an outperformance in the first three quarters this year, we have seen some underperformance in the Indian market purely on the valuation front.
The markets are looking for value; thus, value stocks such as those in PSU baskets have done very well.
The market has been consolidating and has been largely range-bound in the last few weeks.
Even though it achieved new highs, its growth has been moderate in comparison to the double-digit rallies observed globally.
Overall, the market performance is largely in line with what we have been predicting.
What was good or bad for the Indian market in 2022, in your view?
India has emerged stronger from the global uncertainties of the pandemic, supply chain shortages and the energy crisis are the aftereffects of war and the markets have performed well.
Among the factors which went well for the Indian economy, is that we were not impacted by inflation as much as some of the major economies, and we have hardly seen a slowdown.
In fact, we have seen a recovery in the rural sector and in discretionary spending.
Companies from the travel and tourism sector have delivered good business performance and their stocks have also done well in the markets.
How do you see the RBI's efforts in managing inflation? Should the magnitude of rate hikes have been lesser?
Managing inflation was one of the key challenges of 2022, and RBI has done a great job of controlling it.
November inflation came within RBI's comfort level of below 6 percent after a very long time.
The central bank has also lowered the annual growth expectation for inflation.
With some shoots of commodity prices going down, we expect interest rate hikes to moderate.
Please share your view on India's performance on the economic growth front. Last time you said that we cannot decouple completely from the global trend. Do you still believe that, or did the country's economic resilience surprise you?
India is one of the fastest-growing economies in the world right now. However, it has shown strong economic resilience on the domestic front.
The resilience shown by domestic investors against foreign outflows and strong consumer sentiments has helped the country outperform even in uncertain global environments.
Having said that, we still believe we cannot decouple completely, as the macroeconomic factors which influence global markets will have an impact on India as well.
Government initiatives such as “Make in India” have played an important role in the manufacturing sector’s bounce back.
Post covid, we have also noticed that many Indian companies despite posting decent growth, have deleveraged their balance sheets.
These companies are paying higher interest rates (or at pre-covid levels) although their balance sheets have grown stronger.
This coupled with a pick up in rural activities next year may propel the Indian economy's growth going forward.
We have believed that India’s story is one of long-term sustainable growth and have been confident of our country's long-term fundamental prospects, so this performance has not been a surprise.
Gold is considered a hedge against economic uncertainty. How do you see gold's performance in 2022?
Traditionally, gold has been treated as a hedge against economic uncertainties.
Even though gold has underperformed on a relative basis in 2022, we have seen some recovery in gold prices in the last few weeks.
Investors use gold as some part of their portfolio as a hedge for long-term portfolio construction.
When interest rates are at low levels, gold's ability to shift in the opposite way of real interest rates makes it an efficient hedge against inflation.
Lately, despite high inflation, gold prices have not moved up considerably. So we believe gold has not acted as an ideal hedge during this time.
Banking stocks, especially PSBs, stole the limelight in 2022. What worked in their favour this year? Can the trend sustain in 2023?
Overall, the banking sector has done very well recently. After the consolidation in their asset quality in the last two years, 2022 was the year of growth.
Most of the banks have posted growth in line with or higher than market expectations.
Investors have realised the value in PSU stocks due benefits of consolidation and stronger balance sheets.
Some of the stocks were available for as low as 0.3-0.4 times their book value which was much lower than historical lows.
The gap between larger private sector banks and PSUs has declined this year, especially in the last two-three months.
In this challenging environment also, the PSUs were able to pass on the cost to the lenders which has worked well for them translating into higher NIMs (net interest margins) and higher profitability for most of the banks.
After this rally, one should book profits in the banking sector. We can wait for the third-quarter results and their commentary and then take a call for 2023.
However, the deep discounts at which some stocks were available have trimmed down significantly.
Disclaimer: The views and recommendations given above are those of the analyst. These do not represent the views of MintGenie.