Just wondering how to navigate this volatility? Are you selling in panic? That would be a bit silly, but do you buy the dip right away or do you wait for the dust to settle?
You asked me this question a few months ago when Nifty hit 17,000 and I said not yet. I still feel, not yet. This is partly because we have yet to see events unfold a bit and we have two events; one is obviously Russia invading Ukraine and we need to hear what Putin’s next move or potential next moves might be. Second, in March, the Federal Reserve’s interest rate roadmap will be released. Both are big events that will keep volatility high.
So staying away for just a few weeks, letting the dust settle is not a bad thing to do. We will have more clarity. My investment decisions are in place because we all like to buy our favorite stocks or sectors, but we are affected by world events beyond our control and it just takes away that confidence to hold onto those investments. So staying away is not a bad thing.
Is it time to keep your shopping list ready, because if you were just going to buy, do stocks still look expensive based on valuations?
Market valuations are still high and obviously we have to think about the other factors now. With rising commodity and oil prices, will companies pass on rising input prices to consumers and/or industry? If not, then obviously margins are going to be hit and that will drive down profits.
This is why I believe that the next few weeks will give us an idea of the likely outcome in the short and medium term. Then we can get that shopping list if it’s not affected by any of the events. That’s really what I’m thinking. But everything we think today could be completely different for this sector over the next two to three weeks, as some of these events play out in terms of political and interest rate risks.
Let us get into your perspective on the major rout we have witnessed within the broader markets. Most of our experts tend to agree that when it comes to the broader market, equities have strong balance sheets and can withstand volatility, but have sound fundamentals. These must be very carefully selected and chosen. Are there any names within the broader markets that you think would meet these criteria?
Many companies follow these criteria in different sectors. It depends on the growth prospects of this company and the ability of the management to continue the growth of the company. My concern is that, given the events I have described before occurring in the next two to three weeks, that volatility remains high and that in the broader market liquidity may at times dry up in these stocks , resulting in a sort of larger proportion of falling into stocks. If you don’t want to go there with your eyes wide open right now, that’s fine. You buy the big companies, but just be prepared for that volatility.
Waiting a few weeks will do you no harm. Get your shopping list ready, but the broader market will take time to recover and will still be led by large caps first, then broader market confidence. But it would also depend on whether we are going to see government spending, the growth we expect in GDP, continue where we were two or three weeks ago.
At the moment, this looks like a tall order given the events that have unfolded over the next few weeks. That’s why I’m just a little nervous about buying anything right now. There is a time and it is not now.
Would it be a good idea to have an inflation proof shopping list as amidst all the geopolitical worries the key nexus for India is soaring oil prices with Brent yesterday already hitting the $100 per barrel mark. So far the government is not passing it on to consumers, but will after the UP election results.
I never really understood what an inflation proof business is because once inflation picks up in your economy, everyone is painted with the same brush. Probably need to lean more towards defensives as they have a bit more pricing power. But that said, we had high inflation a long time ago. This hurts earnings in the very short term as it is difficult to pass on these prices until wage growth picks up.
So I don’t think there are inflation proof stocks. You can look at some tech companies that might be outside of that, but of course the valuations are very high and they’re usually the first to be hit because growth will slow. I’m not sure there is an inflation proof industry or company that I could recommend.
Since the market got a little choppy. IT was the first sector to lose its luster. Is IT worth a look right now?
In terms of growth, the sector looks very good, but there are two factors there; The first is that if inflation continues it would reduce growth going forward because as interest rates rise globally it is growth stocks that will be affected and as you know , this will have a sentimental impact on the IT sector.
So there is nothing to hide from it in the short term. Of course, there’s a lot of attrition in this industry right now. Thus, wage growth is accelerating there. Again, it’s kind of a blow to your margins because you’re going to have higher wage growth and you might also see slower growth in other sectors that have propelled you over the past two years. That’s why I said that I’m not sure that there are sectors that are resistant to inflation.