India's Economy To Remain Stable Even If U.S. Growth Is Lukewarm: Max Life's Mihir Vora
Inflation and a hard landing in the U.S. are the biggest worries, says Mihir Vora.
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The Indian economy is on a much stronger footing than the rest of the world, according to Max Life Insurance's Mihir Vora.
The nominal GDP growth is around 10–11% and the new tax regime appears to benefit the urban middle class, Vora, director and chief investment officer at Max Life Insurance, told BQ Prime's Niraj Shah.
Given the high inflation and strong growth in the U.S., he said "we may see some tightening from global central banks." Therefore, "inflation and a hard landing in the U.S." are his biggest worries, he said.
While domestically, the Reserve Bank of India should be more data-dependent in order to balance growth and inflation rather than going completely hawkish, Vora said. "The equity market depends more on growth than it does on interest rates."
Exports of goods and services and the tuning down of oil prices have held India reasonably well, and hopefully they will continue to do so only if the "Fed does not turn aggressive and the growth in the U.S. is lukewarm", he said.
Vohra's Base Case
In the event of a soft landing, there will be no need for a sharp withdrawal of liquidity, said Vora.
It's important to note that "the western world has tied itself in knots with high TED (Treasury EuroDollar) levels both at the sovereign and corporate level, which makes them familiar with low-interest rates. Which means their economy cannot sustain the 10-year bond yield at 4-5%," he said.
Therefore, Vora's base case for the U.S. market is a very sharp hike or very tight liquidity.
As far as India is concerned, Vora sees the financial and I.T. sectors dominating the benchmark indices. There has been 15% to 17% sector-wise earnings growth, and valuations are a bit above average, he said. which, according to him, looks "neither too comfortable nor too alarming."
This hints at a good base for the Indian market, where it has been observed that if the large caps perform well, the mid and small caps will follow suit in six months or so too.
View On Key Themes
NBFCs may emerge from their underperformance, particularly if monetary policy rates are reduced by the end of this year or the beginning of next year, Vora said.
Apart from the absolute level of interest rates, the RBI's management of liquidity also matters as it tends to impact borrowing costs, he said. As such, the banks and financial sector seem balanced at present, he said. "One has to keep an eye on the extent of liquidity tightening to judge this space," he said.
Vora has shifted his stance from being 'underweight' on I.T. services last year to being 'neutral', citing a halt in incremental negatives coming from the U.S.
He is most constructive on themes like industrials, defence, autos, and real estate.