ETMarkets Smart Talk | Financials offer comfort, while discretionary spending multi-decade story: Nitin Raheja

“We believe that financials is currently the most attractively priced segment of the market. Valuations in the sector clearly offer a margin of comfort,” says Nitin Raheja, executive director, Julius Baer India.

In an interview with ETMarkets, Raheja said: “Another segment that we feel strongly about is discretionary consumption which has been a multi-decade story in India,” edited quotes:

The US Fed cut rates by 50-bps in September and we saw big moves in Indian equity markets as benchmarks hit fresh record highs. How do you see this development of Indian markets?
The US Fed rate cut is a welcome move from the Indian market’s perspective for several reasons.

First, it also opens the door for the Indian central bank to cut rates without fear of putting the rupee under pressure.

Second, lower rates in the US will see a reallocation of risk and liquidity to global markets.

Finally it means that the US Fed is willing to stimulate the US economy to avoid a recession which is also welcome for the Indian IT sector as an improving US economy means more spending from consumers.

The US How does RBI view its stance as Fed cuts rates?

We think this will give the RBI some maneuverability to cut rates while focusing on the long-term goal of keeping inflation under control.

Indian market trading at record highs – does that make you cautious or bullish at current levels?
We continue to be bullish on the long-term prospects of the economy and markets.

However, we believe short-term current valuations mean investors have to set realistic return expectations or increase their time horizon for returns.

Do you see greed among retail investors that most of the money is coming through MF so investors are putting in money irrespective of the market level?
Whether the money comes directly or through mutual funds, it is retail money that has driven the markets so far.

Strong IPO demand and oversubscription and froth in the SME IPO segment clearly show that greed is the primary driver today.

How will FII flows shape up after US Fed rate cut?
Indian markets have seen strong FII inflows after the first half-year period this month. There is clearly a lot of interest from FIIs to invest in the markets as they have pulled out of most of the rally in the last three years.

Valuation is clearly a concern for them, although as we saw this month they are also getting greedy and are currently actively participating through the IPO market.

Which areas are on your radar, or which areas are you overweight?
We continue to believe that financials are currently the most attractively priced segment of the market. Valuations in the sector clearly offer a margin of comfort.

Another segment that we feel strongly about is discretionary consumption which has been a multi-decade story in India.

Which theme is likely to do well – value or growth as the interest rate cycle is likely to peak soon?
There is clearly a sectoral rotation that is playing itself out in the markets and is happening in pockets of the mid and small cap space as well.

Sectors like Defence, Capital Goods which saw a huge jump in valuations have corrected or relaxed and this trend we believe will continue in the near term.

Which theme is likely to do well – value or growth as the interest rate cycle is likely to peak soon?
We are currently seeing low volatility and quality returning as themes in the markets. In the long run however we believe that growth will be the main theme which will pay off in the long run.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)