In an interview with ETMarkets, Cheruvu said: “The timeless principles of buy and hold and the remarkable potential of compounding interest deserve our unwavering commitment, making it all the more important to embrace new investments with a focus on long-term wealth accumulation” Edited excerpts:
Q)The market touched record highs, and then we saw a blip triggered by global cues, but the Indian market managed to bounce back, and it has much to do with its core economic strength. What are your views?
A) Core macroeconomic fundamentals remain vital for India – the economy is growing comfortably without any signs of overheating. However, several factors – mostly externally oriented- have paused Indian listed equity market sentiment.
The US unemployment indicator for July 24 rose to a slightly alarming level of 4.3%. Nevertheless, calls for a 50bps cut by the US Fed are on the cards in Sept-24, with the latest unemployment rate. Overall, India’s macro fundamentals remain resilient, as reinforced in the latest Union Budget with an appealing downward glide path of the fiscal deficit and sustained infrastructure focus by the States and the Centre.Q) We are seeing some aggressive moves from central bankers which triggered a knee-jerk reaction in equity markets in the week gone by. RBI decided to hold rates while the US Fed plans to cut rates in September. Will it trigger a risk off sentiment?A) Even though a “risk off” sentiment might seem like the immediate reaction to a rate cut, a rate cut typically stimulates further economic growth. Even after a rate cut, India would still have a comfortable position in terms of real interest rates, as the current rate (based on RBI forecasts for FY25) is close to 2%.Therefore, capital flows should not be significantly affected, and the growth prospects for India should remain strong as corporate earnings start to pick up.
Q) Where should investors be putting their money right now?
A) Investors can enhance their investment strategy by diversifying their portfolio rather than concentrating all their funds on a single opportunity or asset class. Although individual stock valuations are currently high, the overall market valuations remain close to long-term averages.
Therefore, it is prudent to balance growth and value investments. In cases where identifying these opportunities poses a challenge, it is advisable to allocate to both strategies with active rebalancing dynamically.
Q) There is a lot of money waiting on the sidelines to enter equity markets. Hence, any dip will most probably be bought into. Is it the right time to invest fresh money if you are Gen Z?
A) In today’s ever-evolving economic landscape, we are witnessing a reevaluation of traditional beliefs. While we typically associate savings with hard-earned income, the current environment of ample liquidity, showcased by the surge in SIP flows, has unexpectedly underscored the significance of savings for individuals.
Consequently, conventional investment approaches are taking a back seat as behavioural finance steps into the spotlight.
In a generation seemingly fixated on the allure of rapid 10% returns in minutes through exotic Futures and Options trading, it is crucial to contemplate long-term financial well-being.
The timeless principles of buy and hold and the remarkable potential of compounding interest deserve our unwavering commitment, making it all the more important to embrace new investments with a focus on long-term wealth accumulation.
This shift opens doors to promising opportunities for securing a prosperous financial future.
Q) What is your take on the IT sector post June quarter results? Some analysts are calling the sector the underdog of FY25. What are your views?
A) The IT sector is approaching a low point in earnings, especially for mid-cap companies. Employee turnover is decreasing, and major clients, especially in banking, are expected to increase spending due to anticipated Fed rate cuts. SLA contracts are not being extended, and management is not revising guidance downward.
The market is eagerly awaiting Accenture’s annual earnings guidance on August 24. Valuations reflect some optimism, but attractive growth areas with balanced risk-reward remain.
Q) Are there any sectors where you are cautious on and why?
A) The banking and lending sector faces concerns such as a slowdown in credit growth, scrutiny of deposit growth, and a potential decrease in return on assets and net interest margins.
In the recent budget, infrastructure sectors have seen some increase in allocations. Still, it is wise to wait for signs of recovery before entering these sectors.
Q) SIP crosses Rs 23000 cr mark per month — the kind of money to which markets are attractive is huge. It is more like a common man rally which we are seeing. It looks like retail investors are chasing the Crorepati dream via SIPs – what are your views?
A) Liquidity has driven market sentiment, with increasing technical trading volumes. Maintaining disciplined investment strategies for long-term and short-term asset allocation is essential.
Given recent events, investors should conduct thorough research and adopt a checklist-style approach to minimize biases and maintain objectivity in decision-making.
Q) What is your call on the rupee?
A) The Indian Rupee (INR) has been weakening against the US dollar recently, primarily due to the Reserve Bank of India’s (RBI) strong buying of the greenback through intervention. Additionally, the Union Budget FY25 introduced several changes to the capital gains taxation regime, impacting holding periods and taxation rates.
This, combined with the increase in Securities Transaction Tax (STT) in Futures and Options (F&O), may have surprised some market participants. There is also talk of a potential 50 basis point cut in US interest rates by the Federal Reserve, leading currency market participants to anticipate a lower likelihood of a US recession and a stronger US economy. As a result, the INR is expected to weaken. However, the reinforced downward trend in the fiscal deficit provides some comfort.
Q) Also, if you can take us through the earnings report card of India Inc. which have come out with their results?
A) In Q1FY25, top-line growth is recovering, but bottom-line growth is weaker. Lending businesses face challenges with asset quality, leading to slight delinquency increases. Earnings drivers in metals and energy are not robust.
Major staple companies experience muted volume growth. The automotive industry shows strong earnings growth, and IT companies see revenue growth with decreased net headcount reduction. Real estate performs well with strong pre-sales and new project launches.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)