'Investors are building all data points into their market assessment'

Ajay Argal of Franklin Templeton believes that any change in stance to lower the pace or the quantum of rate hikes could provide an interim positive trigger for the markets.

Slowing growth in the economies has not deterred the global central banks from staying put on the policy tightening path, said AJAY ARGAL, vice-president and senior portfolio manager - emerging markets equity – India at Franklin Templeton in an interview with Puneet Wadhwa. While this has been factored in, any change in stance to lower the pace or the quantum of rate hikes could provide an interim positive trigger, he said. Edited excerpts:

What’s your take on the recent macro numbers and how the markets have reacted to them?
 

Inflation (CPI) appears to be stabilising. In the coming months, inflation is likely to moderate gradually to below the upper threshold of 6 per cent from the current 7 per cent. Food prices will likely moderate as well due to government intervention and adequate reservoir levels. Global supply chain pressures are also easing. The July manufacturing PMI was impacted by the unfavourable base effect; as such it may not be correct to infer anything from one reading.

There are positives as well. Domestic demand shows a relatively healthy growth trend supported by private consumption growth, which remained resilient on a three-year CAGR basis. The top-end consumer growth is strong. August goods and service tax (GST) collections remained healthy over Rs 1.4 trillion for six months in a row. This is due to nominal revenue growth of Corporate India picking up. Credit growth in the banking sector has picked up as well. So, the investors are building all the data points into their market assessment.

Do you think the markets are factoring in post positives at the current levels?
 

Slowing growth in the economies has not deterred the global central banks from staying put on the policy tightening path. While this has been factored in, any change in stance to lower the pace or the quantum of rate hikes could provide an interim positive trigger. If crude oil falls further – either due to letting up of geopolitical tensions or otherwise, it may trigger further buoyancy in the market.

What are the factors investors should be cautious about?

Events unfolding on the external front could potentially provide triggers for adverse market movement. Despite recent deceleration, commodity prices continue to hover at pre-pandemic levels. Continued uptrend in commodity prices, especially energy prices will pose risk. Steepening of domestic inflation and inflation expectation beyond the projected levels, persistent weakness in current account situation, continued currency depreciation are some factors that could mar market sentiments.

Your top buys and sells thus far in fiscal 2022-23 (FY23)?

We increased our weightages on select private sector banks with scale and stability or improving asset quality. In the pharma sector, we have increased our exposure in sector leaders. An electric goods manufacturer and a chemicals company are also now part of the portfolio. Weightage of a PSU bank and a smaller bank was reduced. We have switched some of our holdings in the auto sector. We have substantially reduced our positions in public sector OMC and public sector gas utilities. Weightage to construction materials was reduced. Our strategy remains consistent with focus on growth-oriented companies with strong management and robust balance sheets.

How are you approaching the upcoming results season?

For the upcoming quarterly results, we expect continued pressure on margins across sectors as higher cost raw material inventory gets consumed. We would be keenly tracking the commentary from the corporates along with the results to assess the impact of higher inflation on the demand going forward.