In an interview with ETMarkets, Vijayakumar said: “Financials, particularly leading banks, are good buys now since their valuations have come down only due to FII selling,” Edited excerpts:
With central banks looking at tightening the money supply – what is your view on markets in the medium to long term?
The medium to long-term trend of the market would depend on how aggressive the monetary tightening would be.
If the indication from the US Fed is that the terminal rate at the end of this tightening cycle is going to be above 3.75 per cent, markets are likely to turn bearish.
A lot would depend on the nature of inflation and the price of crude.
Encouraging data from MF in May and SIP flows are increased marginally which is a positive sign, but at the same time redemptions are also happening. But, do you foresee more funds getting allocated towards fixed income vs equities?
More money may move to fixed income if equity returns are poor through 2022.
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If the market bounces back and give decent returns, equity mutual fund flows will continue to be resilient.
If someone plan to put Rs 10 lakh now – which is the ideal medium. What is the ideal asset allocation strategy?
60 percent of the amount may be invested in equity mutual funds through a Systematic Transfer Plan (STP) spread over 10 months. 30 percent can be invested in short-term debt funds. 5 percent may be parked in liquid funds and 5 percent in gold ETFs.
Do you think FDs will now become more popular at least for the risk averse investor in light of rising interest rate scenario?
FDs are unlikely to become popular since inflation is high and real returns are negative. Average inflation in FY 23 will be around 6.5 percent, which means the real return from FDs will be negative. It will be hugely negative for taxpayers in the 20 or 30 percent tax bracket.
We saw the rupee hitting a record low in June – which stocks or sectors are likely to benefit the most from the surge?
All exporters will benefit from depreciation of the Indian rupee (INR). The two significant sectors are IT and pharma.
IT and pharma contribute 15 percent and 5 percent respectively to Nifty’s earnings and, therefore, INR depreciation can be a tailwind for Nifty’s FY 23 earnings, too.
Specialty chemicals, textiles, and certain segments of autos also stand to gain from INR depreciation.
Crude oil is also hovering around $120/bbl – which might not put India in a comfortable scenario if it holds around this level. How will it impact economy, as well as valuations?
Crude at $120 is a major macro headwind. This can take our Current Account Deficit to around 3.3 percent in FY23.
If the Ukraine war escalates and push crude beyond $130, the consequences for the economy and markets will be bad. The reverse will be true if the war ends, and crude and other commodities decline.
With rise in interest rates do you think it would dent valuations?
Logically, rising interest rates should reduce valuations. As rates rise, the discounted value of future earnings will decline.
This is more relevant now when valuations are higher than long-term averages. Nifty at 16000 is trading at above 18 times FY23 earnings against the long-term average of 16.
FII selloff in India is part of larger global selloff. When will FIIs reverse the trend and dos that mean that FII heavy stocks where they have a double digit stake could remain under pressure?
So long as dollar and US bond yields appreciate, FIIs will continue to sell. They will stop selling only when dollar and bond yields stabilize, which in turn, will depend on US inflation rates and Fed’s policy.
There are plenty of stocks trading at double-digit discounts compared to their 52-week highs. What is the right strategy to be followed when buying a falling knife?
Buying in the current market should not be based on how far stocks have corrected from their peak. Buying should be based on fundamentals and prospects.
Financials, particularly leading banks, are good buys now since their valuations have come down only due to FII selling.
Paradoxically their profitability has improved and is steadily improving. They may continue to drift down in the near-term due to sustained FII selling.
But for long-term investors with an investment horizon of minimum 2 years, this is a great opportunity. Falling knives are best avoided.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)