We have been telling our clients that this is the time to deploy capital. When we get money, we do not sit on cash because nobody can time the market but we fundamentally do not see a major downside from here unless we save and accept some major unexpected catastrophic event happens. We see markets in a fair value zone,’ says Vikas Khemani, Founder, Carnelian Capital Advisors
Khemani also says that India’s growth continues to remain intact and whenever these kinds of fearful environments are there, they typically form a base for a good run ahead. Now whether that will happen in three or six months' time, we do not know but this gives reasonable comfort that in 12 months, 18 months or 24 months out, there is money to be made and risk to reward is definitely in favour.
Markets are not doing a whole lot and seem to be stuck in a narrow range but you have been doing a lot of interesting things including long range cycling, getting a lot of time off from markets or what?
You have to keep doing it all the time and have to take time off from the market for sure for your work; you have to balance.
It has been 18 months of consolidation. When was the last time we saw this kind of a long consolidation in the market?
These kinds of things come after a very sharp rally in the markets. 2021 was a great start and even late 2020 did very well. Also, we have to keep in mind that what happened last year, post Ukraine war, which is a rare occurrence and also this kind of sharp tightening happens once in 40-50 years. The implication of that globally is that markets are negative. Fortunately for us, we are just consolidating.
There is always an operating environment and within that, returns come. Given where the environment is, I think India has held out very well. Of course we have not had positive returns but at the same time, we have not had negative returns either. We are in a good consolidation phase. We are still in a phase of time correction because there are no obvious immediate catalysts and there are some potential risks around. Till then, the market would move around in a narrow range and that can continue for some more time.
The SVB Bank issue came in and now there is a buyer for that bank. Similar was the case with Credit Suisse. Is the impact of global news reducing?
Whenever there is this kind of sharp tightening in global financial markets, there is always going to be repercussions somewhere because it is an integrated system and one does not know which part of the system will get impacted. Whenever there is this kind of sharp tightening, there is bound to be market to market losses, there is bound to hit asset pricing because the tightening is intended to slow down demand and impact the asset pricing and that is what has happened.
In which form it will come out, nobody knows and it is still not over yet. So, we do not know what kind of impact would be there. The only comforting part is that the regulators and the governments around the world have come around and say we will make sure that no big institution falls and thereby no cascading impact of that is there.
But having said that, somebody has to bear that pain and I would assume that right now the environment is there. The moment inflation peaks up, which I personally believe is around the corner, because we have already seen food price, commodity price and energy price correcting, as the inflation number prints lower or are in the comforting range, we will start seeing interest rates sort of settling down and thereby the environment also settling down.
But as far as India is concerned, our inter-linkages with the global economy as far as the capital dependency is concerned are very less and we do not depend much on that. We cannot remain completely un-impacted in an integrated global economy but our dependency or impact is far lower than it has ever been and India is reasonably well placed. To that extent, we have not seen any major impact on our currency and we have not seen any major impact on our markets. It clearly shows the resilience of the Indian economy and Indian markets. When things settle down again, Indian markets will outperform.
In the wake of the global volatility and the time correction that you pointed out, a lot of sell-side brokerage analysts are pointing out that Indian markets have become reasonable when it comes to valuations. The huge premium that India was commanding seems to have ebbed away but what are you doing with the incremental flows at this point of time? Is it better to keep the powder dry and wait for more correction or have you started nibbling?
Frankly speaking, we have been telling our clients that this is the time to deploy capital. When we get money, we do not sit on cash because nobody can time the market but we fundamentally do not see a major downside from here unless we save and accept some major unexpected catastrophic event happens. We see markets in a fair value zone.
India’s growth continues to remain intact and whenever these kinds of fearful environments are there, they typically form a base for a good run ahead. Now whether that will happen in three months' time or six months' time, we do not know and nobody can predict for that matter but this gives reasonable comfort that if you take 12 months, 18 months, 24 months out, definitely there is money to be made and risk to reward is definitely in favour. That can markets go another 5% down, very well and nobody can predict for that but risk rewards are falling into place as far as the Indian markets are concerned.