We saw the broader market indices, they are at record highs and pockets like sugar, defence, they have been quite euphoric and we have seen that kind of frenzy. But which are the other pockets that can see some run up going forward?
Well, already, I would say the market has done very well, especially the midcap and the small cap segment. So, I would think there will be continued traction in the railway stocks, in defence. sugar, as you mentioned, industrials are doing very well.
Real estate, after a 10-year down cycle, over the last one year we have seen real estate attraction picking up in the broader market and the stocks are also doing well.
So, real estate should continue to do well. Media is looking strong as well. So, media, small sector, but that can be looked at.
Banks were trailing and today has been a strong up move on this Friday.
But going ahead, we have to really watch out for the credit trends on the banking side, the cost of fund trends, those will become important.
But banks remain a very strong sector overall for the Indian market. On a contrarian bet, I think we can start looking at IT but in a slow phased manner over the next three to six months, there will be good opportunities coming in IT. The worst seems to be over as far as IT is concerned.But what is your take on the banking space because that has been an underperformer on the back of the ICRR announcement but now on Friday when we see a positive news coming in on that front and the rally was also quite exciting to see. But what is your take on the ICRR discontinuation as well as going ahead? Do you believe that the underperformance in banks is overdone now and are they likely to perform well on the positive side for the upcoming week?
RBI had brought the ICRR basically to address the issue of excess liquidity coming in on the back of Rs 2000 notes coming back into the banking system and over 80% of those got deposited as further deposits or current accounts into the bank.
So, RBI wanted to suck out that liquidity. They have been successful. In fact, the banking sector went net negative about a week back where they were borrowing about 25,000 odd crores on a net basis from the RBI window.
So, RBI has met its objective and slowly in a calibrated manner it is releasing this liquidity back into the system that was met with a lot of applause by the markets and the banking stocks were bid up on Friday.
We expect that momentum to continue. The key factors to look at for the banks will be one, the cost of funding for banks. So, does the liquidity come back to slight net positive or will RBI maintain the constraints on the liquidity to manage inflation in a high oil kind of an environment?
The second will be what are the credit trends. So, with the next quarter numbers coming another one-and-a-half months away, those will become the key determinants and then, of course, the global scenario, what does the Fed do on 20th September? Our thesis is the Fed holds for now, but it will be a hawkish hold and then November 1st will be very data dependent on October.
But we think that we have reached the peak of the US rate hike cycle.
Europe is also, if not the peak on 14th September, we are about one rate hike away. Bank of England, Andrew Bailey has already said they are very much near the peak, maybe one more rate hike at the most.
So, the world is gravitating towards peak interest rates and as that comes off, normally it is not very good for the stock markets or banks. Rather, when the rates go up, the banks tend to do much better because the deposits are priced later and the loans are priced much quicker.
So, on the reverse cycle, their cost of funds will be higher and the new incremental loans will start coming in at lower rates but I think that cycle is at least six to eight months away. So, we have a Goldilocks period where the economy will do well and banks will do well for the next six odd months.
Because this particular week and the week upcoming is very important in terms of the G20 summit and from Friday itself, by the time President Joe Biden is in India, we have seen a news flow like NVIDIA flowing in collaborating with companies. So, what is your take? How important is this meeting for India as well as from an investor point of view any particular sector that investors need to keep on radar that could be interesting enough?
I think a lot of things will happen. Nearly 13 bilaterals the prime minister is doing today itself. So, we are expecting a lot of agreements. But look at the Gulf money coming into India, Gulf orders coming in. We have seen industrial companies announcing huge orders from the Gulf and also Gulf investments will come in.
Second will be technical collaborations with the US, UK, France. We are expecting some announcements there and stocks have moved in anticipation. So, be it railways, be it infrastructure, be it technology, semiconductors, we are expecting a lot of investments to be announced and a lot of agreements. So, all these sectors will be beneficiaries. Hardware, technology, semiconductors, investments from the Gulf and order flows from the Gulf for our industrial giants.
