ETMarkets Smart Talk: We are getting cautiously optimistic on equities; like gold as a hedge: Rohit Beri

Edited excerpts:

Sensex and Nifty breached Budget Day closing recently. Where are markets headed in March 2023, which is also the last month for FY23?
The markets have corrected from their recent peaks due to concerns about global growth emanating largely from persistent inflation, which is leading to policymakers increasing interest rates.

The geopolitical risks are also leading to risk aversion among investors. We believe that India is relatively better placed on the macro front. The corporate earnings for 3QFY23 have been largely in line with consensus.

The market valuations have corrected and are now closer to the historical averages with a relatively better outlook on earnings growth (~11-13% CAGR for the next 2 years) and ROE improvement vs the last decade (low single-digit earnings growth).

With inflation stabilising and the interest rates peaking out, we believe that the risk-reward is slowly turning favourable.

With geopolitical tensions increasing – could this lead to another selloff in equity markets and a rise in Gold? How should long-term investors approach this – is it a good time to build the portfolio?
While we believe it makes a lot of sense to hold gold as a hedge against uncertainties, we are getting cautiously optimistic on equities, albeit with a slightly defensive approach towards portfolio construction.

What is your view on the proposal of extending market hours for the equity segment? What, according to you, is good, bad, and ugly if the proposal is implemented?
As Nithin Kamath, who is the founder of Zerodha, has quoted in the media, “Any move to extend trading hours for futures and options (F&O) will boost revenues for capital markets, but retail investors may suffer due to stress and overtrading”.

We can’t agree more with his view.

As the market retested Budget lows – what are the near-term headwinds which the equity market has to battle in the near term?
The near-term performance of the market would be influenced by inflation expectations which in turn would be the guiding factor for the interest rates globally, geopolitical situation and economic data.

RBI could do another round of rate hikes before a pause. What are you suggesting to your clients in a rising interest rate scenario?
While there are expectations that RBI would announce another round of policy rate hikes, the market seems to be pricing in the same which is reflected in the sharp increase in bond yields in the past one month.

We believe that the interest rates have largely peaked out and are suggesting clients invest in long-duration bonds.

What is making FIIs nervous about India? Are they booking profits, or the smart money is moving towards fixed-income instruments?
FII flows into India are governed by a host of factors like global liquidity, interest rates, currency volatility, macroeconomic outlook, and corporate earnings growth.

Political stability, the geopolitical situation, and relative valuations vs other global markets, to name a few. Given the relative outperformance of India till a few months back, there could be some profit booking. Also, they may be finding some other markets attractively valued.

We believe that as the concerns over global growth start coming down and inflation stabilises/comes down, the FIIs flows can reverse in favour of India, and we are still expected to be the fastest-growing economy among the major global economies.

The recently announced union budget has allayed some of the major concerns around the fiscal deficit and growth.

There is a saying that ‘Don’t lose sleep over near-term volatility if you are a long-term investor’. But the current volatility almost resulted in a double-digit fall in portfolio value for some investors. How should one navigate the markets?
We have a strong belief that bad times will get cancelled out by good times. This is why “time in the market” is suggested for equity investment as against “timing the market”.

Equity is a risky asset class, and there is bound to be increased volatility every now and then, but if you are invested in sound businesses at reasonable valuations, then over a long period, there are optimum chances to make healthy risk-adjusted returns.

What would you suggest to investors if they want to diversify their portfolio towards global markets amid the recession, inflation, and currency risk concerns?
If investors want to diversify their portfolio towards global markets, there are a host of opportunities like index funds tracking global indices; Liberalised Remittance Scheme (LRS) allows Indian investors to invest in foreign securities up to a certain limit.

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