ETMarkets Smart Talk: These 4 sectors are likely to get impacted the most from a weak rupee: Siddharth Oberoi

In an interview with ETMarkets, Oberoi who has nearly 26 years of experience in Indian Capital Markets, said: “If crude stays even at $110 a barrel for the next one quarter, the economy will be in a much more difficult state as compared to today” Edited excerpts:

Rupee seems to have taken the center stage as it inches closer to 80 levels. What is leading to weakness in the currency and where is it headed?

This was coming, soaring costs across the board, rising crude oil is the biggest overhang coupled with tightening liquidity in the US all the things combined are a recipe for disaster for our currency.

If crude stays even at $110 a barrel for the next one quarter, the economy will be in a much more difficult state as compared to today.

After all, there’s a limit to how much policy intervention the RBI can do to mitigate the impact.

Q) Going by the recent data, SIP culture will only pick momentum in near future. What can a 20 Year SIP of more than Rs 1000 do to your overall corpus?
SIP bestows one with the power of compounding as well as grants the benefits of rupee cost averaging. SIP period can vary. It can be weekly, monthly, quarterly, or annually. In the past two decades, Nifty50 has grown at a CAGR of ~14-15%. If we apply the same trend by considering a monthly SIP, then, this could result in producing gains that are 5+ times the invested corpus.

What would you advise to an investors’ whose portfolio is down say 40% in value and only has laggards? How should one manage such a situation?
‘Strong Rationale coupled with Patience’ is the key. Markets always have leaders and laggards. Sometimes, the stocks that dramatically lose value make an equal amount of gain in near future.

Having said this, not all stocks that are down, necessarily tend to go up. Therefore, one must hold a strong rationale behind the choice and the timing of buying, holding or selling a stock. If you can justify future growth with strong reasons, then, short-term fluctuations can be ignored.

It feels like we are in a perfect storm – Sri Lankan crisis, Ukraine-Russia war, rupee depreciation, FII selloff, and not to forget boiling crude. Have you seen so many variables in the past and do you see this as a wealth-creating opportunity if someone has 5 years or more?
Oil prices crashed from $112 to $35 between 2014 and 2017, and the inflation rate also fell from 6.5% to 3.33% between the same period leading to a large rally in oil-dependent emerging markets like India.

In 2022 Indian markets are constantly spooked by events like crude touching $120/barrel, Inflation etc.

As crude price and inflation have softened from the top, an investor with a long-term horizon can take benefit of the situation by buying companies that are fundamentally strong, have strong future growth visibility, and is undervalued.

Investors can find bargains by following a bottom-up approach which helps investors to focus more on the fundamental picture of the company rather than making future predictions about macro factors in a top-down approach.

Sectors that are likely to benefit or be impacted the most from rupee depreciation and why?
Those sectors which are dependent on imports such as 1) oil and gas, 2) power, 3) telecoms, and 4) capital goods industries are the ones that weaken the Rupee because it becomes more expensive to import raw materials or equipment into India.

The sectors of information technology and pharmaceuticals can help to drive the Indian Rupee’s value up in the long term because they get a lot of their supplies from outside the country, which means the inflow of foreign currency in India will increase, some other sectors are also doing better to strengthen the Rupee like leather, textiles, etc.

If someone in 20s wants to create a portfolio, should they bet on small & midcaps as Nifty50 companies are already matured in their businesses and growth models. What is the right way to look at the asset allocation mix?

Investing in stocks is always dependent on your goals. Someone in his 20s would have a really long-term horizon and can make huge sums of money by investing in small and mid-cap stocks.

There are hidden gems available and if one spends the time to find good businesses in the small-mid cap space, they would be rewarded immensely the best part about investing in such areas is that these are generally ignored by the institutions and FIIs and are priced inefficiently.

Hence, if one can understand the art of valuation in investing, small and mid-cap stocks are the place to be in.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)