I am assuming that in 2023 a lot of macro headwinds will start receding if that is the underlying framework are we in for a good comeback year?
Yes indeed 2022 has been a year with a lot of macro concerns and I think you are right in stating that the macro concerns are slowly abating.
We have already seen nearly 80% or 85% plus of the Fed rate hike cycle already in place.
So yes I think one of the biggest worries of the rate hikes is now clearly behind us and we are talking about rates peaking out in the first quarter March of 2023. There are some possibilities I would say small possibilities of rate cuts in the second half of the fourth quarter of the calendar year and so to that extent I would say things would slowly begin to normalise after the March quarter.
Whether we are in for a big comeback I would say that at this point in time the downside appears to be limited. We have been cautious on the markets for almost a year and the markets have been more or less flattish hugely outperforming the rest of the world.
It has been a great experience for the foreign investors as well. From here on we do not expect very very strong market because the valuations are still on the higher side and there are still some small global headwinds around but I think the downside appears to be limited for sure and I think probably it is going to be a buy on dips market.
When you say downside is limited and valuations are high put in context for us if valuations are high then why downside is limited?
Downside is limited because incrementally the big risk is behind us. Usually we have seen historically that increase in the rates are associated with the PE multiples going down which actually did happen for many global markets. But Indian markets obviously have held up very very nicely thanks to the domestic flows. But what is outstanding in terms of the risk is the global recession. The hard landing risk in the US is probably still there and there is still debate happening on that front. So that is why I mean by some small risk still outstanding. So basically the reason for the risk being limited on the downside is that the rate hike risks are behind but probably the hard landing risks are ahead of us so in that sense there is probably a bit of a small downside but not a large downside and I would actually use the dips if any to add here.
What is the benchmark when you say valuations are high are you using history as a benchmark? If you are using history as a benchmark is that the right framework because historically we have never seen a scenario like this where China is slowing down, US has its recessionary problem and India has got a solid balance sheet both on the corporate end and the retail end. So will it be a good idea to look at past and judge the future?
Yes, the thing is that over the last 10-15 years the average PE multiples have been going up. So you are right that we cannot really compare what happened 20 years ago and 25 years ago that is not a benchmark anymore. But I think last 10 years is still a good benchmark and the reason for that is last 10 years globally we have seen liquidity being quite high and we have been in an environment globally where bad news economically was considered as good news for equity markets.
Bad news is good news that is what has been the mantra for the last 10 years or so. I think we are still in that phase because the economic upswing and the rate hike is now behind us.
So to answer your question I think the broad set up that we have seen over the last 10 years is still continuing and so to that extent we cannot look at 15, 20, 30 years ago what happened then but I think last 10 years is still a good benchmark according to me.
What I also see is that Jefferies has underweight calls on , as well as what is the rationale?
I cannot talk about the individual stock here but what I would say is that in general our stance still remains quite positively inclined on the domestic sectors. So I think you are referring to our model portfolio and over there we continue to remain overweight on domestic sectors like banks, property. We are overweight on consumers, consumer staples and industrials. So we are quite optimistic on the domestic recovery.
In India we are still talking about if not seven may be like 6% kind of a GDP growth which is still a very good number. We look at corporate earnings growth on the domestic side to be around 15% mark. But we are still underweight on IT, pharma, and some of the external sectors.
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