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Tuesday, March 26, 2024

ETMarkets Smart Talk: After a blockbuster FY24, watch out for rupee depreciation and monsoon in FY25: Dr Poonam Tandon

“One of the important risks to the macro environment ↗ this year is rupee depreciation ↗ and consequently its impact on CAD,” says Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life ↗.

In an interview with ETMarkets, Tandon said: “Another challenge is the monsoon (if it’s going to be a normal one with good spatial distribution) as food prices are already at elevated levels,” Edited excerpts:

It has been a volatile month so far – what is fueling volatility in the markets?
Dr Poonam Tandon ↗: This month has been volatile for equity markets as a few announcements by the regulators caught the market by surprise – be it restricting IIFL Finance to disburse fresh gold loans followed by restriction on JM Financials for IPO financing and later the ED raids as reported in the media.

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MFs were also asked to submit liquidity stress tests for their mid-small schemes. Subsequently, several MFs have said to restrict more inflows into small-mid cap schemes.

The electoral bond issue was another factor adding to the panic. Apart from the domestic issues we have the Fed Reserve meeting which is expected to give guidance on the future rate cuts.

Although the current situation seems tough, we see it as temporary and believe markets will come back to normalcy.

The voices are growing louder about the valuations around small & midcaps – what are your views? How should investors value small & midcaps for investment in FY25 ↗?
Dr Poonam Tandon: Agreed, in the last 6 months, the primary concern revolving around small & midcaps has been inflated valuations and not any fundamental issues.

Moreover, with SEBI voicing concern over valuations and a few MFs stopping fresh inflows in their small-cap schemes has triggered broader market correction.

Given the sharp rally in the broader markets and frothy valuations in a few pockets, our current stance is conservative.

Our broad approach continues to remain stock-specific with a preference for quality companies with the ability to maintain margins backed by a healthy balance sheet that can navigate this turbulent macro environment.

As we close the FY24 – how do you see FY25 for Indian markets? Any trigger points that investors should take note off?
Dr Poonam Tandon: For FY24 markets are expected to end on a good note with Nifty registering around 27% and for FY25 as well, we are positive on the markets.

This year is an election year where growth in the first half is expected to be election-led spending and post-election full-fledged investment activity will likely start. In our base case, a re-election of the current government is likely to continue the political and economic momentum.

Given the macro stability, we also expect the corporate earnings strength to sustain along with strong ongoing domestic capex momentum, PLI schemes and benefits from China+1 further supporting manufacturing growth.

One of the important risks to the macro environment this year is rupee depreciation and consequently its impact on CAD.

Another challenge is the monsoon (if it’s going to be a normal one with good spatial distribution) as food prices are already at elevated levels.

This can further impact inflation thereby restricting RBI’s ability to cut rates in coming months.

On the global front, economic growth in key developed markets will be closely monitored and geopolitical headwinds such as any further escalation of ongoing Russia-Ukraine and Israel-Hamas issues.

Your list of sectors that investors should not ignore in FY25?
Dr Poonam Tandon: We feel the domestic capex cycle that started a couple of years ago will likely continue for the next few years driven by housing and private capex.

We are positive on the investment side sectors such as industrials, banks, power, and real estate.

What are your views on the semiconductor trend ↗ for the next FY? Will the next set of multibaggers come from manufacturing/IT theme?
Dr Poonam Tandon: Post the pandemic, the semiconductor industry has seen a massive surge in demand amid supply-side constraints persisting globally.

Currently, there is heavy reliance on Taiwan and China for semiconductor manufacturing. To diversify from these regions, many developed countries are looking for an alternative to de-risk their supply chain.

With this backdrop, the government has announced a program for the development of a semi-conductor ecosystem and many global companies are looking at India to set up their manufacturing base.

We believe this provides many opportunities in the associated industries on the manufacturing and technology side.

SIPs have hit near Rs 19,000 cr mark/month. The trend is picking up fast – what does it say about the retail investor behaviour and how do you see the trend picking up in FY25
Dr Poonam Tandon: Agree, SIP flows continue to remain strong as we are seeing a newer high every month with more retail participation. Moreover, many NFOs are being launched by several MFs.

While we remain positive on the domestic flows, we would advise investors to remain watchful and consider the time horizon & risk tolerance to select the fund category accordingly.

Also, other factors such as performance history, expense ratio and investment objective should be evaluated carefully.

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

Kaylie Pferten
Kaylie Pferten
A pilot of submersible crafts in a former life, now married to my husband David and writing about investment advice.

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