Markets factoring good show by India Inc in September quarter: Atul Bhole

With the markets now preparing for the second half of fiscal 2021-22 (FY22) to play out, ATUL BHOLE, senior vice-president for investments at DSP Investment Managers, tells Nikita Vashisht in an interview that the markets should be able to sustain at the current levels despite high valuation. Edited excerpts:

Are the markets fully pricing in the taper and a possible rate hike in 2022?

The US Fed is actually preparing the market for eventual taper and interest rate hike for quite some time. Eventually whenever the taper happens, the market will not see much volatility. It is important to note that the US central bank will taper, or hike rates, when they are confident about the growth sustainability. Even with the confidence about growth, the path to this taper and the interest rate hike will be very gradual. To that extent, the market will not react sharply to the eventual taper and the interest rate hike.

Where does India rank in terms of FII's preference list?

US and select emerging markets (EMs) may continue to do well going ahead. Within EMs, Indian markets stand a good chance of outperforming. That said, Indian markets are trading at significant premium to MSCI emerging market - to the extent of 70 per cent. Historically, this premium has been around 30-40 per cent. But India has always been expensive relative to other EMs. Markets should be able to sustain at the current levels despite high valuation.

How hard has Evergrande's credit risk hit investment sentiment?

The issue will be contained within China and it will not have many repercussions on the global financial system. However, it will cause some growth slowdown within China in terms of real estate and the related sectors, and metal prices as well.

What is your portfolio strategy now?

Our funds have done well thus far in 2021 largely on account of allocation towards mid-and small-cap stocks. And right now, we are making some incremental changes. We are increasing our allocation to domestic cyclical sectors – banking, finance & insurance (BFSI), auto, cement etc. These stocks look attractively valued.

Metal and telecom sectors have been in the news. Are they a good bet now after the recent correction?

A lot of positive have already been factored into metal and telecom stocks. From here on, I don’t see much upside in metal prices due to demand-supply issues. The Evergrande development will keep the demand muted for many metals, as it has implications for real estate and the related sectors that generate demand for metals. A prudent strategy will be to take some money off the table as regards metal and telecom counters.

Your expectation from the September quarter results season?

Markets are factoring a good show by India Inc in the September quarter. Among sectors, the BFSI sector can throw up a positive surprise for the investors in terms of performance and the ensuing guidance. On the other hand, the information technology (IT) sector can face some headwinds in terms of margin pressures due to the salary hikes.

Your expectations from RBI's October policy meeting?

The RBI will continue to maintain an accommodative stance. Growth needs to be supported till it becomes self-sustaining; and till such time, the RBI will remain accommodative. Then there is the inflation issue, mainly due to supply-side issues. To that extent, the RBI will not give any shock to the market in terms of interest rate hike.