Do not confuse the recent decline in share prices with a bear market: Vinit Sambre | market news

The main concern arising from tensions in West Asia is a possible rise in oil prices, which could disrupt India's economy as the country is a major oil importer. Rising oil prices may increase inflation and worsen the trade balance. A further increase in tensions may lead to an uncontrolled increase in oil prices, and therefore market sentiment may remain bearish for some time.

Watch so if the war is local? What sector are you targeting in India?

It is reasonable to expect some market rebound due to sentiment. However, with domestic liquidity plentiful from both institutional and retail investors, the decline could encourage buying at more reasonable levels. We therefore do not appear to be headed towards a prolonged market as minor corrections will likely be seen as buying opportunities.

Outside of banking and insurance, few sectors are trading at reasonable valuations. However, we see potential for consumer discretion as the sector has experienced a slowdown in business momentum but may recover due to favorable monsoons and rising income levels among middle and lower income groups. Additionally, 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 – a price or time drop?

There are two key factors to consider right now: valuation and earnings growth. Over the last few years, Indian markets have witnessed significant gains, which has resulted in higher valuations across various metrics. Some of these gains were well-deserved, driven by strong earnings growth across a wide range of sectors. However, after a period of rapid expansion, earnings growth now appears to have slowed.

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

What global triggers, apart from West Asia, could trigger a bullish or bearish move in the Indian market in the near medium term?

We must closely monitor the US Federal Reserve's stance on interest rates as it has a significant impact on global markets. Although global inflation remains relatively stable, caution is warranted as many countries implement trade barriers, which could create inflationary pressures in the future. Moreover, commodity prices are becoming more volatile due to trade restrictions and ongoing geopolitical uncertainty.

Looking at the recent policy decision of the Reserve Bank of India (RBI) on interest rates, how do you view the interest rate cut scenario considering the health of the economy?

CPI is below the hard target of 4%. Core-CPI declines permanently. Demand indicators are in the red – both urban and rural demand, especially with recent highs in food prices. However, while another argument concerns the robustness of India's GDP, it has undoubtedly grown at a relatively rapid rate but remains below its potential.

Traditionally, high economic growth risks translate into inflation when the economy is operating at full capacity. However, with India's potential economic growth and current real interest rates at relatively high levels, there may be a large cushion to absorb faster growth before inflationary pressures emerge.

The current situation is therefore conducive to a cycle of interest rate cuts and has been so for several months. And given the Fed's interest rate cuts, we have “now” enough reason to cut rates modestly, if not as sharply as the Fed does. Moreover, following the restructuring of the Monetary Policy Committee (MPC), there is greater scope for a fresh approach to the monetary policy stance.