Markets thrive on hopes of end of rate hike cycle; overall valuations reasonable: Harshad Patwardhan of Union AMC | Mint
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Business News/ Markets / Stock Markets/  Markets thrive on hopes of end of rate hike cycle; overall valuations reasonable: Harshad Patwardhan of Union AMC
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Markets thrive on hopes of end of rate hike cycle; overall valuations reasonable: Harshad Patwardhan of Union AMC

Patwardhan underscored that market valuations are reasonable, but there are pockets of overvaluation in select segments that could be vulnerable to changes in sentiment. Mid and small caps are outperforming large caps due to increased domestic flows and their underperformance in the previous phase.

Harshad Patwardhan is CIO at Union Asset Management Company (AMC) Private Limited (Union Asset Management Company/Mint)Premium
Harshad Patwardhan is CIO at Union Asset Management Company (AMC) Private Limited (Union Asset Management Company/Mint)

Harshad Patwardhan, CIO at Union Asset Management Company (AMC) Private Limited, believes that the overall market valuations are reasonable. However, there are pockets of overvaluation in select segments and they can be vulnerable to any sudden change of sentiment. In an interview with Mint, he shared his views on the markets, economy and interest rate trajectory, among others.

Edited excerpts:

What is your view on the current market structure? Why are mid-small-caps outperforming the large-caps?

To understand the current behaviour of the market in a proper context, let’s first review how the market behaved in the earlier phase. 

Between October 2021 and March 2023, the Nifty50 index was almost flat (down 1.5 per cent point to point) but very volatile, with meaningful corrections and recoveries. 

NSE Midcap 100 index behaved broadly in a similar fashion, down 1.1 per cent point to point over these 18 months. 

While NSE Smallcap 100 index peaked a little later but remained weaker subsequently, declining 17.4 per cent in this period. 

The behaviour of the market seems to have changed from the beginning of FY24. 

From April 23 to the end of August 23, Nifty was up 10.9 per cent, while the NSE Midcap 100 index and NSE Smallcap 100 index jumped 30.2 per cent and 36.1 per cent, respectively. 

September has also been a strong month, so far, particularly for midcaps and smallcaps. 

We believe a key reason for the equity markets doing better over the last few months is an expectation that we are close to the end of the interest rate upcycle. 

The reason why small and midcaps have outperformed in recent times is that the incremental domestic flows are concentrated in this category and the smallcap category had meaningfully underperformed in the previous phase, as explained earlier.

Is it still a ‘buy on dips’ market? How do you see the current market valuation?

Medium to long-term prospects of the Indian economy, corporate sector and equity markets continue to be attractive. 

Therefore, investors with long-term investment horizons can look to take advantage of any weakness in the markets to increase allocation in consultation with their financial advisors. 

Overall, the market valuations are in the reasonable fair value zone. 

However, there are pockets of overvaluation in select segments and they can be vulnerable to any sudden change of sentiment.

India has recently seen an upward revision in growth forecasts by some rating agencies and global financial firms. What, in your view, are the key challenges that can hit the domestic economy in the medium term?

Overall, the Indian economy and the corporate sector have exhibited resilience and have relatively outperformed most global peers in the post-pandemic phase. 

Wise policy choices- both fiscal and monetary- made during the pandemic and after have majorly contributed to this phenomenon. 

Also, a slew of structural reforms undertaken over the past decade have started yielding positive results both for growth and stability.

The key challenge over the medium term is to maintain the direction and speed of implementation of current policies. 

There will also be challenges to navigate through the turmoil of changing global macroeconomic conditions and geopolitics

Can we expect no further rate hikes by the Fed and RBI this year? How do you see the inflation trajectory from here?

While the worst of inflation is behind us, central bankers still have difficult choices to make in terms of the conduct of monetary policy. 

The level of uncertainty is high and therefore, the range of potential outcomes is very wide. 

We believe the bulk of the policy interest rate hike cycle is behind us, but rates could stay high for longer.

Is it time to focus on value stocks or should one make bets on growth stocks?

We find good opportunities from a medium to long-term perspective in both buckets.

Which sectors look ripe for decent growth at this juncture? Can the IT sector be a contra bet at this point?

We continue to be positive on the overall industrial space. 

There is mounting evidence of private sector capex finally picking up in addition to the continuing public sector capex. 

It looks like the IT sector is probably past its worst in the current cycle.

The Chinese economy is struggling. Many believe China’s loss could be India’s gain but to what extent can India remain immune to global economic slowdown?

Indian economy and markets are unlikely to remain completely immune to any big global economic and/or financial turmoil. 

However, India is better positioned than many others due to its large domestic economy and rising domestic investor base. 

China is currently facing challenges both on the cyclical and structural fronts. 

Given the opacity of Chinese policymaking, it is not very clear how they intend to deal with these challenges. 

However, on balance, India is positioning itself to emerge as a net beneficiary on this count from a medium to long-term perspective.

Read all market-related news here

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

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Published: 12 Sep 2023, 10:03 AM IST
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