Following the down cycle that began in 2010 and lasted longer till 2018 than expected, the new “pretty strong” growth cycle may go on for five or seven years, India equity strategist at Morgan Stanley Ridham Desai said. The inflection point for the change in market opinion, as prices started reflecting, has been the February 27 Balakot Strikes as before that the market wasn’t certain of a strong government being voted, Desai said in an interview to ET NOW.
“The fact that the probability of the election result is tilted in favour of a majority or a strong government, has clearly shifted the (market) sentiment,” said Desai.
Desai said that while the markets cannot fully price in a new growth cycle but it does have some inkling that growth is improving and some of that is also getting reflected in share prices.
However, more than the election outcome (that institutional investors are concerned about since there are “likely gyrations” if market trades strongly with the elections) Desai points towards two areas to keep an eye on as they might impact share prices over three to four years.
First is the way the new administration looks at managing inflation. “To my mind actually we have gained a lot as an economy from lower inflation. We have gained macro stability and we are probably putting a foundation for growth. If the view on inflation changes, then it may have impact on how growth may pan out over say three to four years,” said Desai.
Second is the choice that the government has on the fiscal side. “We have made a subtle shift from social spending to capital spending or infrastructure spending and we have also brought down the fiscal deficit and a new government may also have the choice to change that,” Desai said.
Financials, real estate, consumer cyclicals, and industrials overall including engineering and construction firms, equipment makers, are Desai’s picks for how a two-three year portfolio should look like.
“What it (portfolio) will not have will be technology, where we have been underweight and will continue to avoid technology for now,” said Desai while avoiding global commodities, global energy and probably utilities as well excluding gas pipeline companies which are witnessing a “more secular trend”.