‘Markets will remain choppy till 2021 end’
Both global and domestic cues have impacted market sentiment over the past few days. ANIL SARIN, chief investment officer of Centrum PMS, tells Puneet Wadhwa in an interview that after being constructive on Indian stocks for many quarters, his firm has now become cautious, given the frequency and size of initial public offerings (IPOS) that are sucking out liquidity. Edited excerpts:
How do you see the markets play out till the end of 2021?
Though there was a recovery in earnings in the June quarter of financial year 2021-22 (Q1FY22) and the economy was less impacted by the second wave of the Covid-19 pandemic than the first, we believe markets will remain choppy till 2021-end. Questions about the nature of inflation (transient or secular) will continue to roil the US markets, and Indian markets will reflect that uncertainty. Additionally, any subsequent threat of a third wave and global supply chain disruptions because of the China situation may also add to volatility.
Do you see a concerted effort by the global central banks now to hike rates and taper liquidity injection as economic recovery gathers steam?
Global central banks have in recent times been more sensitive to market conditions than at any time in the past. Earlier, it was the markets that took their cues from the US Federal Reserve. In recent years, that relationship seems to have changed materially. This makes it hard to predict the direction of rates and liquidity. While the US Fed might restrict liquidity as signalled recently, a $1-trillion infrastructure package has recently been passed by the US Senate. This would indirectly inject fresh liquidity. Thus, it is hard to predict the actual reduction in liquidity. As for rates, there have been instances in post-war USA, where rates have been kept artificially low despite rising inflation. Therefore, the question of rates rising higher and liquidity getting sucked out is quite complicated. The only sure thing is that there would be heightened volatility, which would affect investor sentiment.
What has your investment strategy been over the past few months?
We have been constructive on Indian markets for many quarters, but have now become somewhat cautious, given the frequency and size of IPOS that are sucking out liquidity. The Indian economy is entering a medium-term growth phase, and not participating in this is a risk. We remain bullish on a stock-by-stock basis.
And you are bullish and bearish on…
The government’s thrust on boosting manufacturing will play out in the medium to long term. We like schemes such as production-linked incentive (PLI) and the global trend of China + 1 as they have a sustainable momentum. Additionally, real estate is recovering from a decadelong slump. Healthcare got a tremendous boost due to the pandemic and there still exists a long-term promise. At a broader level, discretionary consumption too still has a lot of steam left.
How do you see markets tackle commodity prices over the next few months?
Commodity prices are emerging from a decade of sluggishness. With a post-covid economic revival in different parts of the world, commodity prices are likely to remain elevated. That said, low interest rates and reduction of friction (faster logistics, approvals, and payments) reduce the hit from higher input prices. There is also market share consolidation, which allows for passing on of higher input prices. As such, rising commodity prices cannot sustainably derail the bullish market momentum.