Worst of inflation behind us; mkt recovery to continue: Emkay's Sachin Shah

The two big challenges of inflation and aggressive FII selling are behind us, believes Sachin Shah, Fund Manager, Emkay Investment Managers

Investors have placed aside concerns around inflation, and rate hikes over the past few weeks, reflecting a significant decline in risk-off sentiment. The benchmark Sensex and Nifty indices have erased all losses for the calendar year 2022 with an impressive turnaround. In an interview, Sachin Shah, Fund Manager, Emkay Investment Managers, tells Harshita Singh that the bulls are likely to stay over the next few months. Edited Excerpts: 

Is the recent market rally sustainable? Should one buy with a short-to-medium term view?

In the last one-month domestic equity markets have virtually reclaimed the levels, which were last seen around the beginning of January. There has been a significant cool-off in commodity prices across the board including steel, non-ferrous metals, agri-commodities and even the last man standing--oil has decisively slipped below $100 a barrel.

Clearly, the trends are suggesting the worst of inflation seems to be behind us. Moreover, data suggests that a major part of intensive FII selloff seems to be done. So now the two big challenges of inflation and aggressive FII selling are behind us along with very decent June quarter (Q1FY23) results from most sectors. This supports a decent sustainable bounce over the next few months.

How do you see the global interest rate regime, including India's, in 2022 after the recent comments by the Fed chair?

In the recent US Fed commentary, there were indications that from here on the central bank may not be in a hurry to increase rates, rather it would watch the ground-level data and revisit its strategy ahead. The 10-year treasury yields in the US have also cooled off quite a bit, almost down to 2.55 per cent levels from a high of 3.5 per cent and very close to the current rate set by the US Fed at around 2.3 per cent. So from that perspective, the markets seem to have stabilized and probably may see very measured movement both on the interest rates and currency front. 

What are the markets expecting from the RBI this week? To what extent are the bond and equity markets discounting the outcome of the MPC meet?

After the last couple of interest rate hikes, the RBI may probably take another 25 – 50 bps hike and may take a pause thereafter. In all probability, a hike of up to 50 bps is already discounted both in the domestic bond and equity markets.

Amid slowing global growth but a robust domestic economy, what should an ideal portfolio look like? Your overweight and underweight sectors? 

The outlook for the Indian economy is solid especially now that the run-away commodity inflation seems to have retraced quite significantly. From that perspective, auto & auto-ancilliaries, private banks, logistics and telecom should do quite well. Even those industries, which are more export facing and where India Inc has proved its mettle like IT services, speciality chemicals, pharma (CRAMS), industrial machinery, textiles and recently electronics are robust. There is a decent amount of orders flowing to capable companies in these segments.          

What do you make of Q1FY23 earnings till now? In hindsight, were downgrade fears unwarranted or is this just a temporary recovery?

The results clearly suggest that the consumer on the ground is still very confident and continues to spend, therefore the aggregate demand seems to be moving on a positive trajectory. Companies have managed their cost structures quite efficiently, taking in stride the raw material cost push and limiting the impact of the same at operating profit levels. We are also seeing a decent amount of traction in capital goods businesses, clearly indicating that corporate India is in a good shape both by higher capacity utilization and capital expenditure plans.