According to Singh, the markets have already discounted a steep rise in interest rates by the US Fed in the current year. What needs to be seen is the effect on inflation and growth
April 06, 2022 / 07:27 AM IST
Santosh Kumar Singh
The Reserve Bank of India should keep growth in mind at its Monetary Policy Committee meeting, although the money market has already priced in an interest rate hike, Santosh Singh, fund manager at Motilal Oswal Asset Management Company, said in an interview to Moneycontrol.
The three-day Monetary Policy Committee meeting, the first in the new financial year, will conclude on April 8.
With March quarterly earnings starting next week, Singh expects good results this time, with sectors like financials likely to surprise on the upside.
How do you approach the markets that rebounded quite sharply and recovered more than 14 percent from March lows?
The markets seem to be pricing in an end to all the uncertainty and the cooling of commodity prices to pre-Covid levels. In my view, given that the war may not be spreading, commodity prices still remain high, which could be a risk to earnings. Also, valuations at a lot of places are still high and hence I would tread with caution.
Some experts say an earnings downgrade for FY23 is unlikely even after a spike in commodity prices. Are you in the same camp?
I think commodity price rises would impact margins at various places in the first half of FY23 and hence next year may see an earnings downgrade.
What are your broad expectations for Q4-FY22 earnings and what could be the hits and misses?
I would expect this result season to be good with sectors like financials, which may surprise on the upside. IT may be the sector to watch out for, for any negative surprises on margins.
Do you think the expected aggression in terms of rate hikes by the US Federal Reserve in the current year is not a big risk now?
This would remain an event to watch for, but markets have already discounted a steep rise by the Fed in the current year. What needs to be seen is the effect of this on inflation and growth as the concerns are that this may slow down the US growth rate, which may lead to a global slowdown in growth.
Do you expect any change in the RBI’s policy stance amid elevated commodity prices, inflation worries and expected rate hikes by the Fed?
The current inflation is a supply-side shock and any reaction to this may not be warranted unless it proves to be sticky. I would expect the RBI to keep growth in mind while thinking about a rate hike. However, the money market has already priced in a rate hike.
After the recent recovery and rally, has any sector turned expensive? Also, where do you want to bet your money now?
The recent rally was driven by the commodity price-driven sectors – others have not participated to that extent. One sector which stands out clearly is financials, as despite its earnings outperformance, the sector has underperformed.
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–> The markets seem to be pricing in an end to all the uncertainty and the cooling of commodity prices to pre-Covid levels. In my view, given that the war may not be spreading, commodity prices still remain high, which could be a risk to earnings. Also, valuations at a lot of places are still high and hence I would tread with caution.