Equity markets to be rangebound until election results, says this investment consultant

Given the expectation of favourable elections outcomes, it’s anticipated that the markets will remain within a broader range until the results are announced on June 4, 2024, says Kunal Jain, Senior Consultant and Partner at Alpha Capital, in an interview to Moneycontrol.

He feels significant movements are anticipated only post election results, with market sentiment heavily influenced by factors such as the outcome, the final Union Budget, actions by the US Federal Reserve, and corporate earnings, which will shape the next phase of growth.

Provisional numbers announced by the banking and financial services sector are in line with our expectations, says Kunal, who has almost 10 years of experience in investment management and client management.

Are you betting on capital markets-related names considering the expected growth in the sector across segments?

Yes, we are currently engaging with investors regarding opportunities within the capital markets sector. Historically, the banking sector has played a significant role in driving economic growth. However, there’s a notable shift in investor interest towards capital markets-related entities, which are instrumental in directing household savings towards productive assets within the economy.

Notably, the Indian stock markets are experiencing a steady influx of around Rs 25,000 crore per month from mutual fund SIPs, EPF, NPS, and Insurance, with anticipated growth in the foreseeable future. This figure continues to rise with each passing month, indicating a positive trajectory for the sector.

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Do you think the RBI’s rate cut cycle will be shallower than those of global central banks in the current calendar year, especially after reading the second policy meeting?

Given the improving macroeconomic indicators in India, it’s likely that the RBI’s rate cut cycle will be more restrained compared to that of global central banks, particularly after reviewing the outcomes of the second policy meeting.

However, the RBI’s decisions will still be influenced by global trends, with particular attention paid to actions taken by the US Federal Reserve. It’s worth noting that recent increases in crude oil prices could present challenges in the short term.

Do you see inflation as a big risk for the RBI in the rest of the calendar year, though RBI is hoping for a normal monsoon?

RBI’s focus of bringing the inflation to 4 percent is clear. Inflation measured via consumer price index (CPI) has dropped to 5.1 percent in the first two months of 2024 from 5.7 percent in December. However, crude oil price, monsoon, and US Fed actions will determine the trajectory in this year.

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What do you make out of the provisional numbers announced by banking & financial services? Are you betting big on the sector?

The provisional numbers announced by the banking and financial services sector are in line with our expectations. We advise our clients to maintain a diversified sector allocation strategy, with approximately 25 percent of their allocation dedicated to this sector. This allocation strategy will remain consistent moving forward.

Do you think one should start betting or adding exposure to technology stocks, especially after reading March FY24 quarter earnings?

Considering the recent earnings reports for the March FY24 quarter, it’s worth noting that the technology sector has seen a modest growth of around 25 percent over the past year. However, this growth rate is comparatively lower than sectors such as auto, oil and gas, power, and realty, which have also been integrating Artificial Intelligence and new technologies into their operations.

For instance, despite the overall sector growth, prominent names such as Infosys have only seen a 5 percent increase in stock price over the same period. Therefore, it may be prudent to gradually add exposure to technology sector stocks.

Do you think major action in equity markets will be seen only after the general elections?

The Indian stock markets have largely priced in the expectation of favourable outcomes for the current government in the general elections. It’s anticipated that the markets will remain within a broader range until the election results are announced on June 4, 2024.

Significant movements are anticipated post election results, with market sentiment heavily influenced by factors such as the actual election outcome, the final Union Budget, actions by the US Federal Reserve, and corporate earnings, which will shape the next phase of growth.

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