2 sectors Mahantesh Sabarad is bullish on for near term

“You will notice that in India the 10-year bond yields have kind of softened. Six months ago, the bond yield was somewhere around 7.3%, 7.28%; now it is just about 7%, a little shade below 7%,” says Mahantesh Sabarad, Independent Market Expert.

We have seen the Nifty in consolidation phase. 18,700 was a crucial resistance level. We have got a positive breakout from that level. What does that really indicate to you? Are you seeing fresh highs in these markets now from this point onwards? And if so, do tell us what is helping it along this upward trajectory at this point.
So firstly, the markets are now nearing new highs. Actually, they have not yet reached the all-time high yet, but they are close to it. The single biggest reason I would attribute for this performance is got to do with the background RBI action that has been happening or the global interest rate action if I may have to put it that way. You will notice that in India the 10-year bond yields have kind of softened. Six months ago, the bond yield was somewhere around 7.3%, 7.28%; now it is just about 7%, a little shade below 7%. That change in bond yield has led to a reduction in a level of risk perception about the markets and therefore has taken the market to a newer kind of high or close to a newer kind of high.

That said, there are other contributing factors also. The corporate results, typically the quarter four results of any fiscal year always are looked more deeply because you will have typically better results, you will have companies talking more about their outlook ahead for the year ahead and plans ahead. This year was no exception, but I would say that it is slightly better and now we are entering a year with no base effect actually coming in.

We used to always have base effects affecting the growth for corporates. Earlier it used to be tax rates, that is the GST implementation. Then, we had the COVID phenomenon. Now, all these base effects have gone. So, importantly, all these negative triggers that used to be there are gone. Probably the world is trying to slow down in terms of economic growth. India may also witness a slight slowdown, but nothing worrisome really. So, market is now actually very hopeful and with risk considerably reduced, that is what is making it look better.

How do you reckon the MPC’s decision, how is it likely to impact market sentiment? How do you see the rate sensitives move now?
There is nothing incrementally to worry about even for rate sensitives now. Earlier it was always that hanging sword which said that the RBI will hike the rates whether it is going to be 25 bps or 50 bps, now that worry does not exist. Even if the RBI were to increase the rates by 25 bps, the market will kind of ignore it.

Although the expectation is that the RBI will actually signal a pause. So, the incremental effect of any rate change is now not so important for the market any longer. What is more important for the markets is how the various corporates are going to plan their future ahead. We have seen many of them dither over capex plans, many were actually highly indebted. Now, the situation is much-much better. Most of the corporate debt has been retired. There are no worries related to capex kind of plans as implementation plans. You have the plans, but earlier you had implementation worries. Now, it seems that everything has returned back to normal. So, when you have an economy like India growing fast, you will naturally expect the best of the corporates will start doing better and better. They will implement their plans more vigorously and with better results, that is the general expectation. So, I would say that the markets are in an upbeat mood, at least for now.

Some of it is coming in from the corporates and the kind of green shoots that we are seeing in terms of capex as well. If you have to scale up on the Nifty, what do you think are going to be the sectors that are going to be the biggest contributors? Which ones look the most promising right now?
I think I have said so earlier as well, I would look at the capex sector, the capital goods sector actually which will start doing much better. They will have more order intakes and better execution actually to help them along the way, so that sector should generally lead the way for recovery.

Moreover, we also have the consumption side. Typically, the FMCG companies were affected by high inflation that not only ate away their margins, but it also suppressed the demand for them. Now, we will have a situation where demand will start growing and the inflation worries are subsiding. The only worry FMCG companies would potentially have is if the monsoon were to disappoint in terms of the average rainfall. Already, the monsoon is late as we are speaking right now. That is the only worry part that can affect the FMCG companies. But still I would bet on these two sectors to actually lead the way ahead for the markets.



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