Equity markets have been volatile in recent weeks, more so since the Russian invasion of Ukraine sent oil and other commodity prices surging. Despite the gains in the last two sessions, benchmark equity indices, like the BSE Sensex, are down 5 per cent in 2022. THE WEEK caught up with R. Venkataraman, chairman, IIFL Securities, to understand his views on equity markets, the impact of the Ukraine conflict on India and areas he sees investment opportunities in. Excerpts:
Q/ Equity markets were rocked by the Ukraine crisis. What's your assessment; will we see further downside?
Markets will continue to drift down till clarity emerges on the timeline of the end game in Ukraine, regardless of whether Putin succeeds or fails. In either case, the world will have to live for some time with constrained resources supplies.
Q/ With crude oil prices soaring, costs of other commodities also rising sharply, how is the current crisis going to impact India's economy and specific sectors?
Crude rise will hit our current account deficit – it will rise by 0.5 per cent for every $10 rise – and net exports and GDP growth. Hence, a $40 rise in crude, which is what we are looking at has the potential to pull GDP growth below 6 per cent. Commodity consumers will be impacted – normally while they are able to pass on cost increases, we are looking at global stagflationary circumstances after many years and historical precedent may have limited value – companies will struggle for pricing power and there will be widespread margin compression in commodity consuming companies. Auto, industrials, cement, white goods, will be impacted the most. Generally, discretionary spends may be weak. Staples will see low growth, but not too much of downgrades.
Q/ FIIs have been pulling out huge amount from Indian equity. That has led to several blue chip stocks touching 52-week lows or close to it. Does this present an opportunity for Indian investors to enter and buy quality stocks or is there too much uncertainty right now that you will wait and watch?
At present it is risky to claim to be able to see the market trough. This could go from bad to worse as sanctions bite and more items are sanctioned by western countries led by US.
Q/ In the scenario that we are in where would you park your money in the short to medium term? Cash out, shift to fixed income or gold or pick up beaten down stocks?
In the short term, gold looks a safe bet, along with short-duration debt. Adding duration would not be advised.
Q/ After the correction we have seen in stocks this year, which are the sectors where you now see attractive value in?
Banks have corrected significantly, and SBI, ICICI, HDFC Bank look attractive. Interest rates may edge up globally and in India and this will help with net interest margin expansion. Bank loan growth estimates are still modest and may see only modest cuts. Insurance is a sector that could prove a defensive. We also like telecom, Bharti Airtel being the main stock. IT stocks will do well in a depreciating Rupee environment, plus as the relative strength of the US economy, with its ability to pump out oil and gas comes to the fore. In a falling market, pharma will also do well, and Cipla and JB Chemicals look good bets.
