'Good time to rejig your portfolio'

'I am not saying start buying from today, but start buying in the next three-four months.'

With the US Fed event behind the markets and now there being more clarity on the path the US Fed has chalked out for itself, independent market analyst Amabreesh Baliga, who has been advising caution to investors since 2021 now feels it is time to start buying gradually.

A conversation with Prasanna D Zore/Rediff.com

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The markets closed on a calmer note just before the US Fed event and now that Chairman Jerome Powell announced a 75 basis point hike in its policy rate the markets are behaving well. What could still set the cat among the pigeons?

It was expected that the US Fed would hike the rate by 75 basis points after it had raised it by 50 basis points. There would have been a problem if the Fed had hiked the rates by more than the expected 75 basis points.

For the medium term, we are clearly in a zone where the markets would continue to drift downwards over a period of time because this is neither the end of inflation nor end of rate hikes (by the US Fed).

More than the market cracking from here, I believe it will be more of lacklustre trading with lower volumes. The Indian equity markets will keep coming down slowly.

What makes you say so?

We are not at the end of the inflation rate cycle (inflation will take some time to peak out) and so there will be more rate hikes. At least till the next two monetary policies I expect there will be further rate hikes.

The corporate earnings also need to show some decent uptick and that's not going to happen till December (quarter ending December 2022) come in. Post Diwali we may see some sort of uptick in the market.

If you look at the 12-month rolling returns then other than the broader indices rest of the indices are in the red. This means the retail portfolio is clearly showing a loss.

When retail participants are losing money they may not sell, but they will stop buying. Till now, they were supporting the markets and if that support goes off the market then there will be a slow drift downward.

The only good thing is unlike the institutions the retail players don't sell at a loss. So, I don't expect a major selling coming in but lack of buying in itself will make the market drift downward.

FIIs and FPIs have already pulled out equity investments worth $22 billion from Indian markets since the beginning of 2022. Do you expect the FIIs to sell more aggressively now?

While they have withdrawn the money they still have much more invested in India. They have been selling in the expectation of US Fed rate hikes and now that the event has passed without much ado they will keep selling, but there won't be any panic.

Nothing much is changing for them overnight to take a much adverse view of India, but because of the rate hike they will be more cautious going ahead.

How much more room does crude oil have to rise further and where do you think the rupee is heading?

The markets will take the rupee falling to 79-80 (to the US dollar; currently, it is trading between 78.10-78.20 level) in their stride. Beyond these levels it will hit India negatively.

I think by the end of this year we could touch 80 (to the US dollar) but we won't remain in that region for long. We have been outperforming the other currencies and contrary to market expectations I don't expect the rupee to weaken further.

Crude oil, in fact, should stop out at this level because Ukraine-Russia (and its impact on crude prices; crude oil is hovering between US $118-$120 per barrrel) is now becoming a new normal.

Where do you see the Nifty by December 2022?

We will be around 15000-level. I don't see any major crack, but it will be a grinding move in the downward direction.

What do you think should retail investors do now?

This is a good time to rejig your portfolio and possibly buy more. For the last so many months I have been very asking everybody to be cautious about the markets. I was asking retail to hold back, but now is the time to slowly start buying.

I am not saying start buying from today, but start buying in the next three-four months.

Negatives have been there for the last six-seven months and they are getting absorbed slowly in the prices.