Brent crude unlikely to go above $100 a barrel, says Siddarth Bhamre of Religare
Current valuations are not a matter of grave concern, believes Siddarth Bhamre - EVP, Head of Research, Religare Broking Ltd. In an interview with MintGenie, he said that Brent crude may not go above $100/bbl and even if it goes for a while, it won’t sustain above it for long.
Current valuations are not a matter of grave concern, believes Siddarth Bhamre - EVP, Head of Research, Religare Broking Ltd. In an interview with MintGenie, he said that Brent crude may not go above $100/bbl and even if it goes for a while, it won’t sustain above it for long.
He also noted that after years of underperformance, mid and small-cap space has shown outperformance and it may last for some more time. Stocks will perform if the stock selection is done right, Bhamre advised.
Edited excerpts:
What are your views with regards to the current valuations of the benchmark indices?
It is the general tendency of participants to feel that if we are at or near an all-time high then it means we are expensive. Well to their disappointment, that’s not the case. On 1-year forward earnings, we are trading at 20x which is certainly not cheap but it’s still far away from the zone of 23-25x which is considered expensive. There are global macro concerns but if we see valuations in isolation, current valuations are not a matter of grave concern.
How long do you see the oil prices rising? What will be its impact on the Indian markets?
Crude oil price is carrying a war premium in it and we all know it doesn’t last for long. Fundamentally, oil has headwinds in the form of the struggling Chinese economy and rising bond yields in the US. We believe Brent crude oil may not go above $100/bbl and even if it goes for a while, it won’t sustain above it for long. Our best case scenario looking at the global demand environment for crude, prices for Brent may settle around $75-80/bbl post easing of geo-political issues.
After around a 30 percent rise in mid and smallcaps in 2023 YTD, do you believe it is time for some correction ahead?
Domestic fund flow in secondary markets is still in the increasing trend. With new mutual fund schemes getting launched regularly with the objective of investing in mid-cap stocks, we believe the correction may not be deep. There may be periodic rotation but the space may continue to attract everyone’s interest. After years of underperformance, mid and small-cap space has shown outperformance and it may last for some more time.
Post the September quarter earnings, in which pockets do you believe re-rating is likely to happen?
Auto space has been doing well. Initial earnings from this space consolidate our belief that outperformance by the auto sector may continue for a few more quarters. Both 2-wheeler and 4-wheeler space have been showing encouraging monthly sales figures and there has been a tailwind to margins as well because of a fall in input costs.
Why have the FPIs been selling? Will this trend continue for the remainder of 2023?
For FPIs, India is one of the stocks in their global portfolio within the equity universe. India is in a sweet spot but the world is not and hence there may be a global realignment in asset allocation as rising bond yields may be attracting more fund allocation based on the risk-reward ratio between debt and equity. So it is not necessary that the selling of Indian equities by FPIs means they are bearish on Indian equity. The current trend may very well continue till the time global risk-on trade doesn’t restart.
What is your view on the financial space? Will they lead in Q2 as well?
Government capex as well as private capex has started but the momentum is yet to gather pace. Consumer demand for housing and private consumption is on the rise. Bond yields have increased due to a short-term spike in food inflation and the rub-off effect of rising crude and rising US bond yields. Banks have increased their deposit rates to attract funds. These factors have led to some pressure on margin and have kept growth under check. So, though we expect financial space to do well over a long period of time, there may be a period where margins may remain under pressure. We are witnessing some bit of underperformance in the banking space and it may continue this way for a few months or till we don’t see a sharp fall in crude and eventually fall in bond yields.
Equities as an asset class have consistently been on highs with very little consolidation. Do you believe long-term investors should move towards other asset classes like gold and wait for some substantial correction in equities?
A big NO. Time and again it has been proved that taking bold cash calls in markets has not been so rewarding. Also, in our opening comment, we mentioned that we are not in a scenario where markets are very expensive. Had it been the case that valuations are very expensive and there is fear of recession, then yes, cash calls can be taken, but neither of the situations exists as of now. As far as gold is concerned, one cannot substitute equity with gold as the historical returns analysis is one-sided in favour of equity.
Do you see Indian markets outperforming the global market like they have done in the last 12 to 18 months?
It’s a difficult call to make. The global environment can turn for good or for the worse, quickly. There are too many moving parts. If there is some restoration of confidence due to favorable global macro changes, then we may witness a brief period of outperformance from them. However, if one has to choose a market that may show consistency without much of drawdowns then that would be us, and hence exposure in our markets should be maintained in the said period.
One piece of advice for new investors?
Don’t chase stocks. There will always be an opportunity to invest at the right valuation. Exercise patience. Your stocks will perform if the stock selection is done right.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.
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