In an interaction with Mrinal Singh, CEO and CIO InCred Asset Management
Domestic demand will revive driven by infrastructure-related spending, capex recovery and the sobering of inflation.
"The rural sector appears to be interesting"
What is your general evaluation of the current market situation given the significant correction experienced over the past few weeks due to the Adani Group and Hindenburg report issue?
The market correction is more widespread than being limited to specific companies and is also a factor of the global macroeconomic policies. We feel that we have not seen the end of interest rate hikes and macro pressures will persist. However, domestic demand will revive driven by infrastructure-related spending, capex recovery and the sobering of inflation.
Given the current market volatility, what advice would you offer investors to cope with it?
Volatility always creates opportunities to buy great businesses at reasonable valuations. There could undoubtedly be companyspecific exposures to credit events which need to be avoided. Stocks which are at the cusp of a cyclical upturn are getting less attention because of the overall market sentiment and look interesting to us.
What, in your opinion, are the relevant risks that the equity markets could face in FY23?
Globally, inflation has been sticky and is partly a result of geopolitics and supply chain disruptions. Continued supply chain issues and volatility in oil prices could retract earnings’ recovery in sensitive sectors. Further, inflation could hamper consumption of discretionary products and services. The exchange rate volatility could also alter export competitiveness of domestic producers.
What are the three sectors that you think appear promising and offer potential for investment in the long term?
There is no way to guarantee returns that outperform the stock market average, but we feel that the risk-reward is more favourable towards capex-oriented businesses, healthcare and the rural sector. With the government actively focusing on revitalising the rural economy, the rural sector appears to be interesting. Many initiatives have been launched by the government to improve consumption, infrastructure and job opportunities in rural India.
"Domestic demand will revive driven by infrastructure-related spending, capex recovery and the sobering of inflation"
More specifically:
◼ Healthcare: The demand is non-discretionary and is also seeing a normalisation and increased consumer awareness post the pandemic. Supply factors should also improve and margins for healthcare companies should improve going ahead.
◼ Capex-Oriented Businesses: Both government and private capex have been on the rise driven by the Production Linked Incentives (PLI) scheme which is leading to indigenisation across sectors like electronics, defence, new and emerging industries like green energy and also government initiatives like rural housing, metros, dedicated freight corridor, etc. Downstream companies benefit from broad-based increase in capex.