Investors need to be cautious on Indian equity markets in the short term: Kotak Mahindra AMC

Weak global sentiment following the US Federal Reserve’s rate hikes roiled global markets and led to a sell-off on Dalal Street. The Sensex and the Nifty lost 2 percent on Friday and turned negative for 2022.

Pankaj Tibrewal, Senior Executive VP & Fund Manager of Equities at Kotak Mahindra AMC, believes that investors should be a little careful and cautious on Indian equity markets in the short term.

Tibrewal said, “The risk on rally which started in June for most of the global equity markets is now fizzling out as most of the markets are now back to their June lows. However Nifty is still significantly higher than those lows. We believe that FII flows had a larger role to play in the rally and data shows that India was the highlight in terms of entire emerging market."

He added that domestic financial conditions which have so far been benign have started to tighten now. "...and the LAF surplus which we saw for almost three years have turned into deficit. Also the yield curve had flattened out and that is not a great sign. So it is time to be a little careful and cautious on the market.”

He added that slowdown in global economy is bound to have some bearing on Indian equity markets.

“We cannot be so decoupled — the calendar year-to-date, most of the emerging and developed markets are down between 20-25 percent, and we are flattish year-to-date.”

According to Tibrewal, financial sector could see some tactical correction in short term but may outperform in medium term.

“Financials could see some tactical correction as it is the one third of the weight of Nifty. However, from a medium-term perspective financials will give you that strong earnings growth because the asset quality is still under control. Credit growth is picking up," he said.

Tibrewal added that there could be some pressure on net interest margins as we move into a rate-tightening cycle.

"But overall, the financial sector seems to be well-positioned from a market perspective. So I don’t see a very steep correction, I think investors are waiting for some kind of correction in this sector to go and increase their positions”, Tibrewal said.