Prateek Agrawal, CIO and Business Head at ASK Investment Managers, which is one of the largest companies offering discretionary equity portfolio management services, said that he is working with a Nifty year-end target of 18,500. The US Fed’s hawkish stance will impact equity markets in the short term, but central bankers’ move to tame inflation is a step in the right direction from a long-term perspective, he said.

Q

How will US Fed’s tough stance impact Indian stock markets? 

Inflation falling and settling at lower levels is good news for equity. Any endeavour towards the same should be welcomed, while it may cause short-term pain. If inflation is lower, interest rates can be lower over time. Ultimately, equities value long-period cashflow discounted to present and lower interest rates help valuations.

If we see the US and other central banks’ inflation focus in this light, it should be welcome. Yes, in the short term, markets should be expected to react negatively as money flows back into the US.

With our forex reserves at over $560 billion, we are, as yet, in a comfortable position and our monetary policy can have a higher degree of freedom vs moving in lockstep with the US. If our monetary policy stays neutral, our stronger economic growth can sustain and over time our asset prices should be able to reflect the improvement in earnings.

Sectors with higher foreign participation, such as IT, may get hurt more in the short term.

Q

At a time when fund managers are reducing their weightage on equities across the globe due to current headwinds, how confident are you about the recovery of Indian markets?

The bounce back of the market from the lows has been sharp and has coincided with the fall in the price of crude and lower bond yields in the US. After the bounce back at around 17,500 Nifty levels, the Nifty should be expected to consolidate. We expect to work with an index target of around 18,500 for the end of the fiscal, around 19XFY24 earnings.

Increase in bond yields and sharp upmove in the market have opened up an unfavourable earnings yield to bond yield comparison and a period of market consolidation should be expected. Markets should see returns converging to earnings growth, going forward.

Q

Do you think FPIs’ selling is over for the time being?

FPIs have been sustained sellers for over nine months. This period coincided with commodity price inflation and higher bond yields. While global monetary tightening played a role and is a common factor for all recipients of FPI flows, it is believed that the managers favoured value and commodity markets over growth. Some of these markets such as Malaysia, Indonesia, etc saw several months of positive FPI flows. India is a net importer of commodities, particularly oil, and that may have hurt sentiment.

At the same time, India is a growth market and valuations of growth asset class get hurt more during the period of bond yield rise. Our bounce-back has coincided with a drop in US bond yields and softer oil prices.

After a period of lull in July and August, when IPO activity and sale of blocks by private equity were lower, it should increase going forward. Price to Earnings Ratio have already been offering blocks and this should again sterilise flows which could otherwise have gone to secondary markets. Markets should see a period of consolidation for this reason also.

In a period of global monetary tightening, it is difficult to make a case for sustained FPI buying. However, if commodity prices, particularly oil, fall more and bond yields soften, India should see relatively-positive fund manager sentiment.

Q

Information technology stocks were major underperformers YTD. Would you advise investors to buy now or wait for further downside?

IT sector valuations have fallen to the historical trading band, but their earnings outlook has also deteriorated after two years of strong growth to, at best, historical earnings growth levels, over the next two years. Recent movement of currencies has also not been favourable to IT companies’ margins. We have been maintaining an underweight position in the space for some time.

Q

Which do you think are the promising sectors in the next two-three years?

Sectors which are strong beneficiaries of China +1, a theme which is getting stronger on account of supply disruptions and geo-political events, should see strong growth. Application Programming Interface and Chemical sectors are strong beneficiaries of the same.

Other space where growth can be strong is production-linked incentive scheme beneficiaries, spaces that are seeing strong move away from unorganised on formalisation of the economy. In the engineering space, defence-focussed companies are getting the tailwind of “Make in India” focus and should see sustained better-than-economic-growth rates.

European companies with operations in the country should see more business on more outsourcing by parent on expensive fuel costs.

Q

Share some details about your ASK Golden Decade Fund. 

ASK Golden Decade Fund focusses on businesses that are getting the favourable tail-winds of value transfer, which allows good companies to deliver long period above average growth. Examples of value transfer in the global context are beneficiaries of China + 1, move from unorganised to organised sector etc.

The Golden Decade Fund has closed after seeing a strong investor interest. We will draw down the amount in three tranches over a period of a year. This would allow the investors to average their entry point in the market. We are investing the monies that we have received.

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