Markets Won't Slip Below May-June Lows: Aditya Birla AMC's Mahesh Patil

India's domestic market seems to be in a better place than before and will not slide below May-June lows, according to Mahesh Patil, chief investment officer at Aditya Birla AMC.

Although, India is still recovering from the economic crunch due to the pandemic, "we are domestically more resilient than developing and developed economies around the world", Patil told BQ Prime's Niraj Shah.

"The Indian economy is comparatively in better shape than the rest of the world economies, which are undergoing a slowdown or expected to see a slowdown in the next few quarters."

According to him, there could be a 50-basis-point impact on overall GDP growth because of the current interest rate environment and slight tightening in the liquidity situation, but the underlying drivers to the economy look strong.

The economic strength comes from domestic growth and investments in sectors such as real estate and auto, he said.

The steady inflow from domestic institutional investors amid sell-offs by foreign portfolio investors acts as a balancing factor, he said.

The debt market, in the past couple of years, hadn't seen much traction due to high interest rates, resulting in equities receiving more inflows.

Now that interest rates have begun to peak, some inflows could start moving into debt, Patil said.

Moreover, domestic investors are gradually increasing exposure to Indian equities, which is one of the reasons for expecting resilience in the Indian market, he said.

Key Sectoral Bets

Though India is still in the process of recovering to the pre-pandemic growth rate, domestic and rural consumption is gradually stabilising, said Patil.

Domestic consumption sector, in terms of discretionary, retail and consumer durables, are areas that may see margin improvement at gross profit level as commodity prices have started correcting, he said.

Patil said credit growth of nearly 14-15% in banking sector, compared to high single-digit growth last year, is a positive impact of economic recovery.

According to him, the credit growth numbers in the banking sector could moderate as nominal GDP growth could slow down next year once inflation normalises slightly.

“However, the pre-provisioning profit growth should be good as net interest margins are likely to improve on the back of increasing interest rates... As the loan-to-deposit ratios increase, margins will improve.”

The auto sector has performed reasonably well in the last six months, mostly driven by normalisation in demand and supply, Patil said.

Within auto, Patil expects four-wheelers to do better than two-wheelers which might experience margin pressure from electric vehicles.

Auto ancillaries, that are diversifying and catering to the EV value chain, will perform well in the long term, according to him.

Investors should be cautious about cyclicals like oil and gas, and metals as well as high PE stocks, which could face risk of multiples derating.

Watch the full interview here: