Smart Talk: Why gold, oil and equity markets are hitting record highs?

“The equity markets reaching record highs can be attributed to various factors, including the overall strength of the economy, corporate earnings, and investor sentiment. These characteristics have historically led to an increase in volatility,” says Vipul Bhowar, Director – Listed Investments, Waterfield Advisors.

In an interview with ETMarkets, Bhowar said: “The market is expected to continue its growth in the next 12 months, with government spending likely to be the growth driver in the first half and investment growth re-accelerating, especially from the private side, in the second half,”. Edited excerpts:

FY25 started on a good note, with benchmark indices hitting fresh record highs. How do you see markets panning out in the next 12 months? Will the momentum continue?Vipul Bhowar: The market is expected to continue its growth in the next 12 months, with government spending likely to be the growth driver in the first half and investment growth re-accelerating, especially from the private side, in the second half.

As India is rapidly transforming into a powerhouse investment hub, the inclusion of Indian government bonds in JPMorgan’s Government Bond Index-Emerging Markets (GBI-EM) index suite is expected to attract a more significant number of global investors and boost foreign participation in India’s domestic government debt market.

With steady economic growth, a resilient equity market, and increasing foreign investment in government bonds, the Indian stock market is expected to continue its growth trajectory.

RBI kept repo rates unchanged in its April meeting – how do you see the rate trajectory for the rest of the FY?

Vipul Bhowar: RBI is expected to keep interest rates unchanged until at least July, as inflation, which is still close to the upper band of the central bank’s 2%- 6% target, does not hint at an imminent rate cut.

While the consensus expectation is of a 75 -100 bps cut in the current financial year, RBI will also watch out for how the monsoon season pans out and will consider the reaction of its major peers, primarily the Federal Reserve.

Overall, expect the rate cut cycle to start at the tail end of CY 2024.

The rupee hit a record low against the US Dollar – what is causing the weakness in the currency? Should India Inc. be worried?Vipul Bhowar: The recent ban on rice exports and rise in oil prices on heightened geopolitical tensions and potential supply risks that could widen India’s trade deficit have caused the rupee to depreciate.

Since October 2022, the rupee has traded in a tight range between 81 and 83. While a falling rupee can impact the overall cost of economic activity, potentially leading to inflationary pressures, the current weakness is manageable, and its impact on various sectors is limited.

MF houses also released their data for March month – any key trends that you have spotted in the MF industry? Where is the money moving? SIP @19-20K/monthVipul Bhowar: The rise in SIPs shows a strong focus on retail investor growth, more so a shift towards small cities that contribute to the industry growth and showcase a broader financialization of savings in smaller towns.

There has been a notable shift in the AUM mix from active debt to active equity funds, with equity-oriented schemes gaining dominance, showcasing growing investor confidence in equity funds.

We are seeing a steady rise in crude oil prices. What is fuelling the rise, and should India Inc. be worried? Is there any threshold level beyond which equity markets will get worried?Vipul Bhowar: Supply cuts, economic growth, geopolitical events, and severe weather are driving the rise in crude prices.

These factors have created uncertainty about future supply and demand, leading to higher price volatility and upward pressure on oil prices.

Crude oil prices above USD100 a barrel can widen India’s current account deficit, increase inflation, hurt economic growth, and strain fiscal calculations.

We are in an era where equity markets touched record highs, Gold touched record highs, crude oil prices are also heading northwards, and the rupee hit a record low against the US Dollar – what does the data point tell you? Is there any anecdotal data to support what could be the likely outcome?Vipul Bhowar: These trends can be attributed to factors such as dollar volatility, supply and demand dynamics, geopolitical risks, and inflation concerns.

The current geopolitical tensions and supply disruptions have contributed to the price increase for crude oil.

The reasons behind gold’s price surge include China’s move to add gold holdings unremittingly, the Federal Reserve’s dovish stance, and sticky inflation.

The equity markets reaching record highs can be attributed to various factors, including the overall strength of the economy, corporate earnings, and investor sentiment. These characteristics have historically led to an increase in volatility.

What are your expectations from the earnings of India Inc. for the quarter that ended in March?Vipul Bhowar: The overall growth momentum should continue, with Autos, Banks, and BFSI reporting an increase in net income (y-oy) while global cyclicals like Metals and Oil and gas are anticipated to report a decline.

The healthcare and Cement sector will likely report robust YoY earnings growth. Consumers, Capital Goods, and Technology are anticipated to report moderate YoY growth.

Overall, Nifty earnings are expected to be in the Rs 980 – Rs 1,000 range for FY24 and the Rs 1,090 – Rs 1,120 range for FY25, which is 12%—14% growth year over year.

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