"Fed could skip the hike in the next meeting and do it in the one after that if core inflation is still not in the mandated zone," Vikas V Gupta, CEO & Chief Investment Strategist at OmniScience Capital, says in an interview to Moneycontrol.
He feels the Fed will keep its options open, assess information and economic impact while searching for the right stopping point in the current tightening cycle to reach its inflation target.
Vikas, who has nearly 20 years of experience in capital markets, says it is essential to remain cautious about significant risk factors, such as the uncertainty surrounding US and Indian elections and the ongoing US-China cold war, which could impact the market.
Q: What are your observations regarding the ongoing corporate earnings season and management commentary?
During the current earnings season, several companies have pleasantly surprised analysts with better-than-expected earnings. However, many management teams have expressed caution due to concerns about a potential global economic slowdown, which could impact their near-term revenues and earnings.
Overall, the sentiment has been positive from a Q1 earnings perspective, and it appears that management is adopting a conservative approach rather than being overly pessimistic. This conservatism could serve as a solid foundation, potentially enabling companies to exceed these cautious expectations.
Q: What are your thoughts on the Federal Reserve's rate hike cycle for the rest of the calendar year?
The core CPI remains high at 4.8 percent even as the headline CPI is at 3 percent. Unemployment remains at a 50-year low. Economy remains strong in terms of GDP growth. Given this background, the Fed has hiked the rates in the July meeting by 25 bps to the highest level since 2001.
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It has hinted at further increases if the core inflation doesn’t come below 2 percent soon. However, it could skip the hike in the next meeting and do it in the one after that if core inflation is still not in the mandated zone.
The Fed keeps its options open, assessing information and economic impact while searching for the right stopping point in the current tightening cycle to reach its inflation target.
Q: What is your outlook for largecap technology stocks in the upcoming quarter? How do you view the midcap IT space?
There is a possibility that largecap technology companies may face another weak quarter, but there is also potential for some of them to surprise on the upside.
Factors such as the downward trend in US CPI over the past 12 months, unemployment rates at 50-year lows, and indications of a strong economy with controlled inflation could instill confidence in client companies. Such confidence might prompt these clients to reverse their cautious spending approach and gain a competitive advantage over their peers, potentially leading to positive surprises for the IT sector.
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However, investors should exercise caution with some midcap IT companies as certain ones appear overvalued, and the market may have outpaced their actual growth potential.
Q: Do you expect to select Indian chemical companies to achieve global standards without subsidies?
While it is possible for some Indian chemical companies to scale themselves to global standards without subsidies, having access to subsidies could facilitate and increase the likelihood of success for a larger number of companies. Subsidies provide an advantage, especially when competing against companies that may not be adhering to fair practices by offering their own subsidies.
Q: Do you anticipate a strong resurgence of rural demand after the monsoon season?
The monsoon season indicates a potential comeback of rural demand; however, the full impact will only be known after the season is over. While the overall monsoon appears promising, evaluating the specific impact on various regions and crops is necessary to gauge the actual extent of rural demand recovery.
Q: Have you identified any noteworthy positive developments or serious risk factors during the ongoing corporate earnings season?
The ongoing corporate earnings season has delivered positive surprises, particularly in certain sectors like IT, where companies have outperformed pessimistic expectations. The general sentiment among most management in this sector appears optimistic.
Additionally, the banking sector has shown positive news with better earnings and cleaner balance sheets, playing a critical role as a provider of capital to foster economic growth. However, it is essential to remain cautious about significant risk factors, such as the uncertainty surrounding US and Indian elections and the ongoing US-China cold war, which could impact the market.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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