Stock Market Crash: Inflation Should Peak in Coming Months, May Continue to Scare Markets – Trideep Bhattacharya

“Regarding industrials, our view of India in the medium term has been quite strong. We think there’s a good chance we’ll see a capex cycle in the next two to three years,” he says. Trideep BhattacharyaChief Information Officer, MF.

Fears of a global slowdown as a second-order effect of high inflation appear to be haunting the global market and India is also under pressure. Could this slowdown affect India as well, and in that case, will we need to lower the market valuation further to adjust?
I would say the fear is real. We’ve been talking about volatility in the first six to nine months of the year and we’re gradually getting to the point where, according to initial expectations, this month or maybe in the next few months, inflation would peak and after that, courtesy of the base. effect, it should start to go down.

But before it starts to go down, there’s a spike element that’s basically what we’re in the process of right now. Therefore, incremental data points geared towards higher inflation are scaring the markets and understandably so. My feeling is that it will continue to be that way for the next few months until the worst of inflation passes. After that it should start to come out if the flow of things continues.

What does it mean from the Indian corporate point of view? Oil is the main thing to watch out for besides other commodities. Instead of going into this monthly discussion, if oil stays $120 higher on Diwali, then there’s a reasonable chance of demand destruction on the other side and we’re going to have to prepare for some tough times, recession times or downturn times. stagflation any way you call it. it is medium term.

But barring that, my current expectation remains that in the coming months, inflation should peak. It’s going to give a couple of nightmares like the market is showing today, but broadly speaking it should peak in the next couple of months and come down gradually, not to the levels that we’ve been seeing in the last year, but certainly higher than that, but lower than where we are; Those are the current expectations. But we are keeping an eye on it and acting accordingly.

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How do companies manage? Any feedback?
I would put a bit of context. In India, the inflation faced by Indian companies domestically is similar to what they likely faced in 2015-16. So there was a time in the last decade when you faced a similar kind of inflation levels across the board from a CPI standpoint. The WPI is obviously higher. But in the United States, the inflation they face is similar to what they faced in the 1970s. That’s clearly for the best compared to what we faced in India. Net net, the inflation situation in the US is probably more dire than the one we face in India. But having said that, when I talk to the companies, they say that even the largest companies like the other commodity companies have had to accept double-digit price increases and that, to some extent, has had an impact on the growth of the commodity volume in the short term. But what they are also saying is that there are early signs of rural recovery taking place and so they are not downright bearish. They are somewhat cautious about volume growth in the next two quarters.

But beyond that, they are hopeful that some kind of better rural and monsoon recovery would effectively bail out the rural consumer or at least that section of the population that has been significantly affected by inflation will get a reprieve from a rural recovery. . .

But other than that, generally in the short term, companies are setting their expectations for the June quarter. They set the expectation for fairly tepid volume growth but on the other hand they are still hopeful that the rural recovery will come back to help them.

Copper prices are at a seven-month low. Prices of other metals are also down 15-20% from the recent high. Would you be looking constructively at commodity user companies in the automotive space, capital goods and some other areas?
I think more and more yes is the way to answer your question. There is still a quarter of the pain left with a bit of a backward bias. In other words, the commodity price increases that have already occurred will affect margins in the June quarter and that will probably be the worst impact in terms of impact of commodity prices on margins because the power of Pricing or price mirroring usually occurs within a couple of months. quarters. When the impact of commodity prices is quite high, such as in the March and June quarter, these will likely bear the brunt of the impact of commodity prices.

So there’s a quarter more pain left and more and more that’s the way to look at it, but not in a heartbeat, particularly with respect to the commodity user company. When it comes to industrials, our view of India in the medium term has been quite strong. We think there is a good chance that we will see a capex cycle over the next two to three years and therefore we are positive on the industry. But gradually from a commodity user point of view, we’re starting to work on them, hopefully in the next three or four months we’ll get better prices which can be interesting entry points.

After the correction, what is the one-year forward multiple rate for your key portfolios? How much lower have they dropped in recent months?
In general, this is something that we also covered in the last interview, where we said that, in general, there has been a change in the interest rate regime just to set the right context and in the sense that before we were dealing with the fall of the interest rate for the last time. 10 years and for the last six to nine months we’re dealing with rising interest rates and usually when that happens there’s a valuation squeeze.

If you were to look at the broader market, you’ve seen 20% to 25% valuation contraction in the last three to six months. We have been lucky and hopefully, with a bit of skill, we have avoided the high valuation companies in our portfolio. So while some of our portfolio holdings have taken a hit, they’re small compared to the kind of valuation adjustment we’ve seen in new-age tech companies. Since we generally avoid that, the impact of this valuation compression on portfolios has been relatively limited. But across the market, we’ve seen 20-25% valuation compression, probably a bit higher for higher value stocks. I think that’s because of the change in interest rate regime that we’ve seen globally as well as in India.

Can I assume that a similar type of valuation contraction would have occurred in your portfolios as well or is it relatively minor so if you could tell if it’s a mixed portfolio the multiple cap is down to 15x going forward or 11x? Can you give me that? kind of view?
The market a year from now is still around 19-20x, our portfolio is certainly less than that. It’s 15 to 17 times depending on what portfolio holdings you’re looking at, but what we have to look at is that compared to broader market growth, our portfolio earnings growth is also 5 or 6 points. higher percentage. So relative to the market, the portfolio has a better growth profile and lower valuations compared to what we were dealing with a few months ago.

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

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