handy: expect Nifty at 20,000 supported by bank and car: Harendra Kumar

Tactically Nifty has some leeway but it is in the long term direction of the market and possibly after the Q3 numbers one should take a look and understand the global story, inflation, recession etc. But in the near term, there is some optimism to expect from the markets, said Harendra Kumar, MD-Institutional Equities, Elara Securities India

How do you analyze the setup for India? Yes, we have a tremendous outperformance against the world in the market. Even our economies are much better off than the rest of the world, but how much of all that seems to be built into the price? Or do you think the quality of earnings will even push valuations forward from here? Obviously the markets are in disagreement on the direction to move in as the conversation around the world is rather bleak, but somehow India seems to be holding up and keeping its weight in the MSCI index to rise. Not that they’re buying more because they’ve sold other emerging markets, plus the Indian retail investors who have been instrumental in supporting the markets, either through mutual funds or direct spot positions.

This is the liquidity context that is likely to persist. As the liquidity context is challenged, there are no aggressive tailwinds for the markets to go on a secular one-way flight. It supports us and so in the meantime we expect the Nifty at 20,000 at this point, largely supported by banks and autos. That’s the immediate short-term context we’re seeing.

Tech will be challenged as the Nasdaq capitulates. The story in Indian technology stocks is also moderate at the moment and we don’t expect any serious outperformance from IT. So yes, tactically Nifty has some leeway but it is in the long term direction of the market and possibly after the Q3 numbers you should take a look and understand the global story, inflation, recession etc. But in the near term, there is some optimism to be expected from the markets.

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What is your question right now about the most important variable that also seems to affect flows, sentiment and many other things? It’s US inflation and do you think the peak of US inflation is behind us now? This has two sides to the market. One if you’re guessing that the US will probably go into recession six months later and that’s what the headlines have told us. But policymakers are currently pointing to a slight slowdown in growth and their ability to contain inflation. If option two comes true, they will behave in a very different way because right now markets are trying to price in a recession. Yesterday’s GDP print actually carries the discussion to probably the second option and that will be an interesting outcome that the market has yet to revalue and recalibrate. If that happens the bets will totally change, maybe it’s technology, maybe it’s metals, maybe we’ll get recovery on the rupee; maybe a beta is coming.

At the moment the markets are betting on a recession but the imprint seems to be that the US is much more in control and if that plays out we will need to recalibrate our bets and portfolio positions.

India increasingly seems to be taking a view that we would try to curb inflation but not at the expense of growth, which is why there is even a brake on rate hikes and much more calibrated rate hikes. Do you see inflation moderate as energy prices have fallen and food, pulses – all contributions from our own inflation basket seem to have peaked? An emergency meeting of the MPC is scheduled for November 3. I think the world seems a little more optimistic on inflation, and so does India. But inflation was not such a big concern for India. Otherwise we would have political noise around inflation at a much higher decibel level. The CPI and WPI index levels per se are not very high from where they were before Covid.

So while inflation may be contested and absolute price levels are manageable at the moment, that’s why we don’t see any concern from the political front. Even if you look at the regulators, they are talking about interest rates that have normalized from pre-Covid levels. We’ve had a wave of budget cuts and have reached the point where we were pre-Covid. I don’t think the regulators are going to disturb the construction or architecture too much from here. There will be a pause, there will be a calibration from this point on in terms of how growth is going to behave and that is what is likely reflected in the banking stocks and some of the other stocks.

I agree that the market will wait and watch as the policy makers move and if they get signals that inflation has peaked or interest rate hikes have peaked and the pace will slow down we will see the markets see a major revival.

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