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Business News/ Markets / Stock Markets/  US debt ceiling is a concern, but one should buy Indian markets on dips selectively: Rahul Ghose

In an interview with Mint, Algo-trading platform Hedged Founder & CEO Rahul Ghose says, Bank Nifty can hit all-time in June series. On the global front, US debt ceiling may not directly impact Indian markets, however, any statement from US Fed officials hinting at a change in stance on interest rates, could trigger a buying spree in the US dollar, resulting in a withdrawal of FIIs from the Indian stock market. Here are the Q&As discussed with the spokesperson during the meeting. 

1. What is your near-term and year-end outlook on Nifty and Bank Nifty? Do you think both the indices are headed for all-time highs in June series?

Yes I do, in fact for Bank Nifty especially I have said all through the last two weeks that the 43500 to 42800 level on Bank Nifty is a strong buy level and any correction that comes into this zone will take the index to beyond its all-time highs, and this was when everyone was saying that this could be a reversal and a double top formation. 

For the Nifty Index specifically, the journey from 18500 to 18850 will not be as slow as the journey from 18000 to 18500. The floor for the Index is now changed to 18150 and until this level gets taken out, all dips in the market should be looked to be bought.

2. FII investment in May 2023 has been strong. To what extent US debt ceiling will be a major overhang for continued FII inflows, though a debt default is just a theoretical conversation?

The US debt ceiling is definitely a topic of concern for stock market experts and investors. While a debt default is considered a theoretical conversation as you mentioned, it could indeed have an impact on foreign institutional investor (FII) inflows into the Indian stock market. 

If the outcome of the US debt talks leads to new currency printing or the acceptance of negotiations, it is expected to put the US economy under pressure and potentially result in higher inflation. This could further increase the pressure on the US Federal Reserve to consider an interest rate hike.

Despite the potential impact on the US economy, we expect FIIs to remain net buyers in the near term. The weakness in the US dollar, influenced by the US debt ceiling and the US Fed's stance on interest rate hikes, has made FIIs bullish on the Indian stock market. They anticipate that the weakness in the US economy and the US dollar would lead to FII buying in the Indian market remaining unaffected in the short term. 

While the US debt ceiling may not directly impact Indian markets, any statements from US Fed officials hinting at a change in stance on interest rates could trigger a buying spree in the US dollar, which could result in a withdrawal of FIIs from the Indian stock market.

3. How the rising debt situation in the US will impact markets like India? How it will impact INR and as a result how Indian economy will be impacted?

The approaching US debt ceiling has created uncertainty in global financial markets, including India. While the chances of a US default are low, the looming deadline has made investors cautious. If a deal is not reached, there could have spill over effects on the Indian economy, such as the depreciation of the rupee and volatility in financial markets. Businesses with exposure to the US market may also face challenges. 

However, if a resolution is reached and the debt ceiling is raised, the impact on Indian financial markets should be minimal. In the unlikely event of a brief default, there could be a short-term growth shock in the US, triggering risk-off sentiment and depreciation pressures on emerging market currencies. A default would have negative consequences for India, including potential declines in exports and changes in trade patterns. 

The yield differential between Indian and US bonds could also narrow, affecting foreign portfolio investment flows. The situation remains speculative, but a default would have catastrophic consequences and could significantly impact various sectors in India.

4. What is your view on the March quarter result? Which sectors are you bullish on?

Earnings for Indian companies in the quarter ending March 2023 have shown a mixed trend without significant surprises. The results reflect ongoing concerns about global macroeconomic conditions and inflation impacting businesses. 

The banking sector has performed well, while IT firms have reported modest numbers. FMCG firms have shown a positive-to-mixed trend, and automobile and cement companies have delivered performances in line with expectations.

Based on this, I have a positive outlook on the following sectors:

Manufacturing Sector: The manufacturing sector is experiencing a strong revival, with increased capital expenditure from both the government and private sector. This presents an opportunity for investments in short-cycle plays such as bearings and abrasives.

Private Sector Financials: Private sector financial companies have shown promising numbers and reasonable valuations. I believe that the returns on banks and financial services will be driven by earnings growth rather than relying solely on multiple expansion.

Pharma Sector: The pharma sector shows potential for growth. There have been improvements in the US market, including reduced price erosion and signs of improved performance by companies in this sector. It is an interesting area to explore for investment opportunities.

Additionally, I suggest re-evaluating the IT sector after a quarter, as technically it looks to be coming of its bear market. In the banking sector, while positive news may already be factored into the valuations, banks could still outperform the overall market due to anticipated earnings growth. Furthermore, I maintain an overweight position on the auto sector, particularly in auto ancillary companies, across multi-cap, flexi-cap, and large-cap funds.

5. From a trading perspective, would you like to recommend a few stocks that traders could watch out for in the June series given the current market scenario?

A couple of stocks on our radar, thanks to the HEDGED Algorithms are:

1) Asian paints - This stock has come out of a long consolidation and has broken out from this level and a demand zone. Further, the cost of crude has also aided this move and we see the stock moving up in the months to come. It might be important to keep in mind though that the run-up could be a tad bit slow

2) Sbin- Once the stock crosses 595, it has the potential to scale up as it would have broken out of a very popular chart pattern. Keep a watch on the 565 level as well, if this level is hit first, then the chart pattern would get negated.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Updated: 29 May 2023, 08:52 PM IST
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