ETMarkets Smart Talk: A volatile October! Keep an eye on Israel-Hamas conflict and US Treasury Yields: Akhil Chaturvedi

“It is crucial to remember that developments in West Asia, rising crude oil prices, and spikes in US treasury yields warrant some caution,” says Akhil Chaturvedi, Chief Business Officer, Motilal Oswal Asset Management Company.

In an interview with ETMarkets, Chaturvedi said: “Any major escalation in the Israel-Hamas conflict could introduce more near-term volatility, but for India, the macroeconomic factors seem stable, earnings growth is robust, and domestic liquidity remains strong” Edited excerpts:

October is turning out to be a roller coaster ride for investors in equity markets. Will geopolitical concerns have a long-term impact on equity markets if things escalate?
Investors in equity markets are facing uncertainty this October due to geopolitical concerns. While these concerns may cause short-term volatility, they are less likely to have a lasting impact on the equity markets.

As of now, there hasn't been a significant global or Indian market impact. However, it's crucial to remember that developments in West Asia, rising crude oil prices, and spikes in US treasury yields warrant some caution.

Any major escalation in the Israel-Hamas conflict could introduce more near-term volatility. For India, the macroeconomic factors seem stable, earnings growth is robust, and domestic liquidity remains strong.

While markets may be volatile, a significant correction hasn't materialised yet.

Do you see any long-term implications on the commodity cycle due to geopolitical concerns?
Geopolitical concerns often lead to questions about the long-term implications for commodities, particularly oil. Currently, we haven't seen a substantial impact, but there's a risk that disruptions could occur.

For instance, if the U.S. were to enforce restrictions on Iranian oil exports strictly or if disruptions spread to the Strait of Hormuz, it could affect the oil supply.

However, there is no direct evidence of such disruptions. Also, we are seeing reports of US easing sanctions on Venezuela oil and gas, which may provide stability to Crude prices.

The Indian economy is in a position to withstand oil prices at around USD 80 per barrel and short-duration price spikes. Additionally, as India gets included in JPM bond indices in FY25, it could receive significant incremental FPI flows, which would strengthen reserves.

Considering the country's current account deficit and forex outlook, it's likely that the economy's growth momentum won't be significantly dampened unless oil prices surpass USD 100 per barrel.

SIP of more than Rs 16000 cr or $2 bn – does this excite you? This is good news for the MF industry as well as for equity markets. But as more schemes get launched every month --- investors will only get confused. How should one do fund selection?
The substantial growth in SIP flows, exceeding Rs 16,000 crores or $2 billion, is indeed exciting. SIPs offer a disciplined approach to investing, promoting rupee-cost averaging and long-term wealth building.

I anticipate that these flows will continue to grow, thanks to greater industry awareness and efforts.

Regarding the launch of new schemes every month, it's essential for investors to approach fund selection with caution. Only invest in a new fund offering (NFO) if it fills a specific need or gap in your portfolio.

There's a wide variety of NFOs, and it's not necessarily a bad idea to invest in them if the product is promising, unique, and addresses your portfolio's requirements.

However, if you are uncertain, seek advice from financial experts, as their guidance can be invaluable to ordinary investors.

What are your expectations from September quarter earnings?
We believe Nifty earnings are likely to grow 21% yoy in 2QFY24. Overall earnings growth is projected to be driven once again by domestic Cyclicals, such as BFSI and Auto, while O&G’s earnings are likely to surge 2.2x YoY.

The metals sector is likely to report a 6% YoY earnings growth. Cement is anticipated to report a strong 72% YoY earnings growth on a low base, while Healthcare and Technology would clock a moderate earnings growth of ~7% YoY each for the quarter.

Are PSU the right place to be in – as inflation remains high and the market moves from growth stocks to value stocks?
Last two years, Value Style has performed very well, and it continues to do so this year as well. However, this year, we are also seeing growth style also picking up.

So, this is a unique year where both Value and Growth are in traction. A lot of sectors and stocks have already been re-rated meaningfully.

Investors must balance their portfolios across value and growth rather than timing one over other and they would always benefit one way or other at the portfolio level.

How are you positioned for the rest of the year? Where is smart money moving?
Our growth themes that are reflected in portfolios are focused around retail-focused lenders, Insurance, and Healthcare, with a greater focus on hospitals, high-end consumer discretionary businesses, and manufacturing.

Our portfolios are growth-oriented portfolios focussed on growth themes where the best exponents of the theme are present in the midcap and small-cap space and hence have tailwinds due to structural impact from domestic flows.

With the World Cup on everyone’s mind --- which sector could be the captain or Rohit Sharma of the portfolio?
The next two quarters will be driven by big events like the ICC Cricket World Cup and festive season, and these can serve as positive catalysts in the short term for consumer demand.

We believe several sectors in Consumer Discretionary can see demand uptick from these events. We are also bullish on lenders.

Valuations in Banking are reasonable after the recent underperformance, even as asset quality continues to remain healthy. Overall, we believe more than Capitan, team effort i.e. diversified portfolio will be the winner.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)