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

“We continue to believe that financials are currently the most attractively priced segment of the market today. The 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: “The other segment that we feel strongly about is discretionary consumption which is a multi-decade story in India,” Edited excerpts:

The US Fed delivered a 50-bps rate cut in September and we saw a big move in Indian equity markets as benchmarks hit fresh record highs. How are you viewing this development for Indian markets?
The US Fed rate cut is a welcome move from an Indian market perspective for many reasons.

Firstly, it opens the door for the Indian Central Bank to also cut rates without fear of putting the Rupee under pressure.

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

Lastly it means the US Fed is ready to stimulate the US economy to avoid a slowdown which is also welcome for the Indian IT sector as an improving US economy means more spending from clients.

How do you see RBI taking its stand as the US Fed cuts rate?
We think that this will give the RBI some maneuverability to cut rates while still focusing on its long-term goal of controlling inflation.Indian market is trading at record highs – does it make you cautious or bullish at current levels?
We continue to remain bullish on the long-term prospects of the economy and the markets.

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

Do you see greed among retail investors or most of the money is coming via MFs so investors are putting money irrespective of market level?
Irrespective whether the money comes in directly or through mutual funds it is retail money which has driven the markets so far.

The strong demand for IPO’s and the oversubscription and froth in the SME IPO segment clearly show signs of greed being the primary driver today.

How will FIIs flows shape up post the US Fed rate cut?
This month has already seen strong FII flows into the Indian markets after a tepid first half period. There is clearly a lot of FII interest to invest in the markets as they have largely sat out most of the rally in the last three years.

Valuations are clearly a concern for them, however as we saw this month they are also becoming greedy and are currently actively participating in through the IPO market.

Which sectors are on your radar, or which sectors are you overweight on?
We continue to believe that Financials are currently the most attractively priced segment of the market today. The valuations in the sector clearly offer margin of comfort.

The other segment that we feel strongly about is discretionary consumption which is a multi-decade story in India.

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

Sectors like defense, capital goods which had seen huge run up in valuations have corrected or are taking a breather and that is the trend we believe will continue in the near term.

Which theme is likely to do well – value or growth as interest rate cycle is likely to peak out soon?
We currently are seeing low volatility and quality making a comeback as themes in the markets. Longer term however we believe that growth will remain the predominant theme that will deliver returns over long periods.

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