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Business News/ Markets / Stock Markets/  Expert view: Worsening geopolitics biggest worry; bullish on banks and NBFCs, says Amar Ambani of YES Securities

Expert view: Worsening geopolitics biggest worry; bullish on banks and NBFCs, says Amar Ambani of YES Securities

Expert view: Geopolitical tensions are the biggest market worry with a lack of fresh positive triggers. Banking, NBFCs, and select financial services stocks are viewed positively for the medium term, according to Amar Ambani of YES Securities.

Expert view: Amar Ambani, Executive Director at YES Securities India sees geopolitical tensions as the biggest concern for the market. (YES Securities India )Premium
Expert view: Amar Ambani, Executive Director at YES Securities India sees geopolitical tensions as the biggest concern for the market. (YES Securities India )

Expert view: Amar Ambani, Executive Director at YES Securities India believes geopolitical tensions are the biggest worry for the market. He also underscored that the market lacks fresh positive triggers for a decisive up move in the short term. In an interview with Mint, Ambani shares his views on how the market may move in the short term and why he is bullish about banking and the NBFC space. 

Edited excerpts:

The market is dealing with a lot of headwinds, including geopolitical tensions, sticky inflation and fading expectations of rate cuts. What is your short-term view on the Indian market?

The market lacks fresh positive triggers for a decisive up move in the short term. In fact, the market has to contend with multiple issues. 

You mentioned geopolitical tensions, sticky inflation and interest rates. The ongoing result season is likely to witness a deceleration in growth rate. 

Commodity prices are moving up and will impact the operating margins of India Inc. in the next quarter. 

Gold moving up so strongly sends worrying signals about the future. 

The rise of the yellow metal cannot be simply attributed to central bankers' buying or Chinese household purchases. 

Unless, we see an end to the rally and its subsequent retracement, it may be signalling a worsening geopolitical situation or higher-than-expected inflation in times to come. 

We must keep in mind that the Nifty has risen 29 per cent in the financial year 2023-24 and valuations are now elevated. 

After such a phenomenal performance, generating a similar return is always challenging unless there are fresh new developments. 

Having said that, the structure is positive for banking and financial sectors and heavyweight Reliance Industries, where there are value-unlocking triggers; especially having seen ABFRL’s (Aditya Birla Fashion and Retail) plan to create value recently. 

Domestic liquidity is strong and I see a lot of interest among foreign portfolio investors towards India. 

The market can witness a short-term rally on election results if the mandate is as expected.

Also Read: FPIs offload 20,000 crore in Indian equities in 4 sessions amid rising Iran-Israel tensions, hawkish Fed

How could the election outcome impact market sentiment?

The election mandate is likely to be for a strong and stable government at the centre. 

This will provide a near-term fillip to market sentiment. 

Unless there is a severely fractured mandate, any party at the centre will continue with the development agenda, so little changes for the market in the medium to long run. 

Policies to promote Make in India, provide support to rural India, infrastructure building and import substitution will continue.

Also Read: BJP manifesto 2024 promises policy continuity. What does it mean for the Indian stock market?

Interest rates are expected to stay higher for longer than expected. What should be our investment strategy for an elevated rate regime?

The European Central Bank may cut interest rates faster than expected. This is because they have seen a fall in inflation and desperately need to support their economic growth. 

Other than that, the Fed is unlikely to be in a hurry to drop rates. 

There has been some inflation build-up in recent readings and would want to monitor the Middle Eastern regime dynamics and its impact on the global supply chain, before cutting rates. 

In any case, it is going to be tough for inflation to drop to levels of two per cent, pegged by the Fed. 

They will have to accept a higher inflation rate as a new normal and only then will they be in a position to reduce interest rates meaningfully. 

Therefore, my view is that rate cuts in 2024, will be fewer than presently anticipated. 

The RBI is likely to follow suit. During times of inflation, it is always better to be parked in an asset, rather than being in cash. 

So investors must continue to be invested in equities, property and gold. But one has to taper down their return expectations when the cost of capital is elevated.

Also Read: US Fed Chair Jerome Powell signals delayed interest rate cuts amid high inflation

What are the risks that investors should be wary of in the medium term?

On the global front, worsening geopolitics is the biggest worry. We currently have more than one region in conflict. 

The entire Middle East seems to be getting embroiled after recent attacks by Iran on Israel. 

Supply chains are at risk with the Strait of Hormuz accounting for 20 per cent of global oil trade passage. 

Trade with landlocked Central Asia, a big agricultural producer and raw materials like copper, natural gas, cotton, gold, and uranium, gets potentially affected. 

Central Asia also hosts a network of air routes, roads, and rail, that link China, Europe and South Asia. 

The other risk is the fast rise in global debt level, which has moved up by an extra 40 percentage points, as a proportion of global GDP, since 2008. 

Back home, one thing that worries me is the state of the rural economy with depleted savings, fallen incomes and rising indebtedness.

What sectors are you positive about for the medium term?

We are bullish on banks and NBFCs and select financial services stocks. 

Many stocks like HDFC Bank are looking ripe for an outperformance after a long subdued period. 

We continue to be upbeat on real estate stocks and have added many of them to our coverage universe. 

Demand for homes is healthy even at elevated rate regimes and organised developers are commanding a premium on their inventory. 

Stocks linked to the infrastructure and private capex themes like cables and wires, steel pipes, cement, and home improvement will do well.

Also Read: HDFC Bank share price: Should you buy, sell or hold post Q4 results? Here's what experts say

What should be our strategy for the mid and small-cap space?

There was a lot of froth building up in this space and the correction in February and March was much needed. 

The ratio of mid-cap to large-cap and small-cap to large-cap had surpassed the second standard deviation.

But I don’t see it as a 2018 kind of fall, where the rally in this space ended for a few years. 

We continue to be positive in this space for the next couple of years at least. But the strategy has to be more selective. 

There has been a notable decline in the share of mid-caps in earnings. So, investors must stick with well-known companies that show sustained earnings growth potential.

Also Read: Stocks to buy: SBI Card, Repco Home, Hikal among 9 stocks that can rise 11-26% in next 3-4 weeks; do you own any?

Read all market-related news here

Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 22 Apr 2024, 11:57 AM IST
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