Mini-recession to reappear in 2020 or 2021, says Karvy Stock Broking's Arun Mantri

A mini-recession is returning in 2020 or 2021, said Arun Mantri, Technical and Derivative Analyst, Karvy Stock Broking, in an exclusive interview with CNBCTV18.com, adding that it will begin from the US market.

Domestically, Mantri said that the market sentiment is unlikely to improve despite the government announcing measures to revive the economy, as the steps taken are mostly medium-term or long-term. He added that for immediate improvement in the market sentiment, the government needs boosters like GST rate cut in the auto sector, increase in government spending, announcements on infrastructure and consumption.

"The only thing positive right now is government responding well to the queries. If this practice continues then there could be some positive impact," he said.

Mantri, in the interview, shared more on how the Indian market is responding to global factors, foreign investors exiting India, measures required to revive the auto sector, his current bets and what he expects from the RBI in October policy.

Here are the edited excerpts:

If you see the market conditions, whatever measures the government has taken, they are mostly medium-term or long-term. This will impact positively for the market but I do not think immediate short-term sentiment will be boosted because the market needs a short-term sentiment booster like GST rate cut in the auto sector. There should be some immediate measure to boost the consumption story as well. The government spending should be increased, and there should be announcements surrounding infrastructure as well. I think the government has announced measures to cure medium to long-term situation and did not come up with anything on short-term basis.

Both factors are affecting the markets. If you talk about global factors, the trade war is definitely affecting the market. Second, the price of gold is responsible too. If you see gold prices, it is making new highs daily. So, major flows going out of the equity market are entering into gold. If you talk globally, major central banks have started accumulating gold at their levels.

If you see the August FII data, more than Rs 14,000 crore have been taken out by the FIIs from India. Even domestically, there is no such positive factor which can take the market higher. The only thing positive right now is government responding well to the queries. If this practice continues then there could be some positive impact.

The liquidity crisis is the first concern, if you go buy a two-wheeler or a four-wheeler, there are no NBFCs which are ready to give loans due to some liquidity crisis in the market. Second is lowering demand. These two things are affecting the overall auto sector. The only thing which can give respite is the festive season. If the festive season goes well for the auto companies, then that will be the first respite. The second will be the GST cut. GST cut should come in the September 20 GST Council meeting. If these two factors get on with auto sector, then I think the auto sector can revive in the short-term.

I am betting on information technology and corporate banks. IT stocks are expected to do well, I think rupee can depreciate to 74-75/USD because Chinese yuan is already depreciated. I think 74 will be the level which you can see rupee also in the coming 3-4 weeks. So, IT stocks will be the first bet then will be the corporate lending banks. ICICI Bank and Axis Bank should do well in the private banking space. So corporate banks and IT stocks are expected to do well.

I think Tata Consultancy Services (TCS) and Infosys are best placed in the overall IT pack; so TCS and Infosys are likely to outperform. Largecaps will outperform in the IT space more than the midcaps or smallcaps because of the exposure to the larger deals in the US.

This market will reward so I don’t think that you should be more towards defensive. You should have a balanced portfolio of defensives and aggressives. If you see the data, in the current calendar year, Nifty50 has moved only 1 percent, but the midcaps and smallcaps are flat more than 14-15 percent. So it should be a mixed bag. I think frontline private banks should be bet on and second is IT. So IT will be from the defensive pack and private banks will be from the aggressive side which you should look on.

In the realty pack, the major concern is liquidity because there is a huge inventory pileup which is already present. If you want to pick realty builders then pick the South-based realty stocks or realty companies as they will do comparatively well as they are placed under tier-II and tier-III cities. Godrej Industries, Oberoi Realty and even Sobha Developers are expected to well because their project bookings are going well in South India. If you talk about road construction, till the existing payments that they have to receive from NHAI then these stocks will also do well. So my first preference will be the real estate players in South India and second would be in road building companies like Dilip Buildcon.

To talk about overall asset classes, the first preference should be direct equity, and the mutual fund should have a mixed bag. Also, invest in gold because I think gold will do well till 2020, and currently we are expecting a kind of slowdown in the US. Therefore, gold will definitely do well. Therefore, it should be a mixed bag with 60-70 percent in equity and mutual fund and 30 percent in gold.

One indication to predict that is the US bond yields. Second is that all the major banks are on-ground to cut their rates, which means that the rates are coming down and yields are moving closer.

Historically, the US has already seen 10-12 years of longest series of good markets and good economy. So, there can be some slowdown in the US market, which indicates that the mini-recession will begin from the US market. Next is the ongoing trade war – if the trade war heats up, it will affect the overall global economy, and if it cools down, there could be some stability in the market and the mini-recession can get postponed by 6-12 months.

If we go as per the data, we are expecting a rate cut because the gross domestic product (GDP) has fallen to 5 percent. The government has to boost the consumption and the economy for which the RBI has to cut the rates, at least 30-40 bps. It will be disappointing for the market if no rate cut is initiated.