Don't mistake the recent pullback in stocks for a bear market: Vinit Sambre | market news

The main concern arising from the tensions in West Asia is a possible rise in crude oil prices, which could disrupt the Indian economy as the country is a major importer of crude oil. Rising oil prices could increase inflation and worsen the trade balance. If tensions rise further, this could lead to an uncontrollable rise in oil prices, meaning market sentiment could remain pessimistic for some time.

Attend the rally if the war is local? Which sector are you betting on in India?

It is reasonable to expect some sentiment-driven market pullback. However, with strong internal liquidity from institutional and retail investors, the decline could attract purchases at more reasonable levels. Therefore, it does not appear that we are headed for a prolonged market, as small corrections will likely be seen as buying opportunities.

Outside of banking and insurance, few sectors are trading at reasonable valuations. However, we see potential in the discretionary consumption base as the sector has seen a slowdown in business dynamism but could recover due to favorable monsoons and rising income levels among lower and middle income groups. Furthermore, the healthcare sector is growing at a solid pace and we are optimistic about its long-term growth prospects.

What kind of correction can we expect – drop in timing or price?

There are two main factors to consider right now: valuation and earnings growth. Indian markets have recorded substantial gains over the past few years, resulting in higher valuations across several metrics. Some of these gains were well deserved, driven by strong earnings growth across a wide range of sectors. However, following this period of rapid expansion, profit growth now appears to have moderated.

With limited room for further valuation expansion, future market gains will likely depend primarily on earnings growth. Given the expected slowdown in earnings dynamics, we expect markets to go through a consolidation phase or period correction. However, I do not foresee a sharp and deep decline in the market, as long-term investors will likely look for opportunities to participate in India's growth story, which remains strong and intact.

In addition to West Asia, what global factors could trigger an upward or downward movement in the Indian market in the short to medium term?

We need to closely monitor the US Federal Reserve's stance on interest rates as it significantly affects global markets. Although global inflation has remained relatively stable, caution has been exercised due to the implementation of trade barriers by many countries, which could lead to inflationary pressures in the future. Furthermore, commodity prices have become increasingly volatile due to these trade restrictions and current geopolitical uncertainty.

Looking at the Reserve Bank of India's (RBI) recent policy decision on interest rates, what is your reading of the rate cut scenario keeping in mind the health of the economy?

The CPI is below the strict target of 4%. Core-CPI is falling sustainably. Demand indicators are in the red – both urban and rural demand, especially with recent increases in food prices. However, while another argument revolves around the robustness of India's GDP, there is no doubt that it has grown at a relatively high rate but remains below its potential.

Traditionally, high growth risks translate into inflation when an economy operates at full capacity. But with India's potential growth and current relatively high real interest rates, there could be a large cushion to absorb faster growth before inflationary pressures emerge.

Therefore, the current situation is quite favorable for a rate reduction cycle and has been like this for several months. And with the Fed cutting rates, we have ample reason “now” to cut rates modestly, if not as sharply as the Fed. Furthermore, with the restructured Monetary Policy Committee (CPM), there is more room for a new approach. the orientation of monetary policy.