If crude oil prices stabilize quickly, NSE Nifty 50 could potentially rise and help investors pocket around 15% in the current year 2022, said George Heber Joseph, CEO and CIO, ITI Mutual Fund, in an interview with Kshitij Bhargava of FinancialExpress.com. Joseph spoke about the impact rising crude oil prices could have on India and named pockets where he spots opportunities for investors. Speaking of new era internet companies, George Heber said the sector is an “obvious avoidance” for him even now as valuations have been slashed and stocks are down from highs. Here are the edited excerpts.
Rising crude oil prices have been a concern. What impact do you think this could have on Dalal Street if oil stays above $100 a barrel?
Rising oil prices are putting pressure on input costs for most funds. India is an oil-strapped country and every $10 increase in crude oil price per barrel adds up to Rs 20,000 crore deficit. Thus, the increase in the budget deficit and the current account exposes the currency to the risk of rapid depreciation against the USD, even if RBI has managed the volatility quite well. Moreover, India’s growth story is also derailed because rising crude oil price is negatively affecting the revenue and cost of many domestic companies.
Where do you see Sensex and Nifty by the end of 2022?
We believe that the Nifty index has the potential to generate a return of around 15% in this calendar year, provided the price of crude oil stabilizes more quickly and, therefore, positive returns in the second half of the year. ‘calendar year.
In the recent Russian-Ukrainian crisis, do you see any pockets of opportunity for investors?
We firmly believe that energy prices may be higher for a few more quarters. This means that in the short to medium term, the beneficiaries of the price of oil such as commodities – oil and gas, coal and lignite companies will benefit, as well as the beneficiaries of the depreciation of the INR such as the computers and pharmaceuticals. If you think a bit long-term, the beneficiaries of India’s growth stories that are battered due to high oil prices and rising interest rate scenarios need to be bought – the sectors related to automotive, banking and infrastructure become a long-term buy from this perspective.
New age internet businesses have dropped drastically now. Are there any big names such as Zomato, Paytm, Nykaa that you are looking to buy now?
We’ve seen countless times if a big IPO happens in a sector or if a lot of IPOs happen in a sector, that sector goes into a super valuation pattern, which isn’t worth the difficult for a value investor. This is the segment of the market that has experienced a real valuation foam due to the accentuation of the activities of retail investors and the support of valuation by investment bankers. Some correction has occurred, but there is room for a massive correction from current levels. Unfortunately, business models are not yet proven with adequate cash flow to support their growth or survival. So, for us, this segment of the market is clearly to be avoided, even now.
Indian stock markets appear to have fallen out of favor with FIIs. What do you think it takes to bring them back?
Softening of crude oil prices and hence control of fiscal and trade deficit would be the immediate triggers that can alter FII flows to India. The central government’s reform program is to result in the privatization of some of the PSU entities; Moreover, if India is added to global bond indices, these can act as strong positive factors that would attract FII interest in India. Ultimately, India is the best growth market in the entire EM pack with a stable government in place with strong winds of population growth, so sooner or later FIIs have to look to India when they plan to grow their capital at a reasonable rate.