US Fed’s “higher-for-longer” stance on interest rates coupled with spiking oil prices and geo-political strife are all contributing to a global risk off sentiment.
Every $10 rise in crude oil prices will increase India’s current account deficit (currently standing at 1.7%) by 0.4% and 0.2% increase in CPI. Rising oil prices will therefore be manageable to some extent, but we must internalize that interest rate cuts in India may therefore get deferred.
Driven by strong earnings growth, our market’s rise to20,000 has still kept 1 yr fwd PE at 18.5x – which is in line with its historical average. Continued prospects of healthy earnings growth coupled with resilient growth in retail flows into the market will likely keep our market well supported going forward.
In the financials space, Neelotpal sees tactical opportunities in NBFCs in a declining interest rate environment, but prefers large banks as structural plays due to their diversified asset books, high credit quality and reasonable valuations.
Neelotpal has moved from under to neutral weight in IT on the back of robust deal flow announcements – which signal revival in FY25 even as FY24 is likely to remain muted. Underownership at an institutional level is also a factor in favour.
Key delta aspects in healthcare sector are (1) turnaround in prices and volumes in the US generics space and (2) growth focused hospitals now beginning to reap the rewards of significant capex for expansions. Domestic pharma continues to grow steadily.
Neelotpal has been booking profits in market favourite sectors like autos and capital goods – where valuations have run up significantly, discounting future earnings projections to perfection, thus leaving no margin for slippages on earnings.
Its time now to prepare for the next leg of the rally, which could well be led by a different set of sectors. That’s what Neelotpal is focusing on now – he is overweight healthcare, real estate and energy sectors, mildly overweight financials, neutral weight IT and has been cutting exposure to capital goods and autos.