Shiv Puri's Key Themes Amid Fears Of Collateral Damage From Fed Hikes
If you look at the history of how the Fed has controlled interest rates, this is an anomaly and not norm, Puri says.
The U.S. economy is likely to slow down significantly as credit lending has tightened in the past few weeks and investors needs to be careful of the collateral damage that the turmoil in the banking system can cause, according to Shiv Puri of TVF Capital Advisors Pvt.
Expectation of higher interest rates for a longer time has made way for a shift in regime, according to the managing director and chief executive officer at TVF Capital Advisors Pvt. "If you look at the history of the manner in which Fed has controlled interest rates, this is the anomaly and not the norm", Puri told BQ Prime's Niraj Shah in an interview.
Emerging markets have been laggards for a long time now, but may accelerate once the Fed actually pauses rate hike. However, such a pause seems far-fetched, Puri said.
Impact On India's Banking Sector
Indian banks are fairly insulated to the global banking crisis and a good space to invest for foreign investors, especially in wake of low cost, granular and retail deposit growth, Puri said. This is because some of the high quality private sector banks that underwent value correction have done reasonably well post Covid, he said.
Private banks are better positioned compared to public peers because of the 'structural flaw' in senior management tenure terms of three to five years, according to Puri.
Businesses that offer growth at a reasonable price remain Puri's focus, as high valued stocks can act sensitive to environmental disturbances sometimes and end up being "value-traps".
Information Technology
Puri is not as optimistic towards IT. His two main concerns are:
Banking being a big customer for IT services in the backdrop of the disturbance the banking crisis has brought in the market.
Increasing applications of artificial intelligence such as ChatGPT posing a threat to the sector.
However, he sees Indian IT services in a good position as the sector appears conducive to the trend of cloud migration. This is thanks to the availability of vendors that are ready to intimately understand the whole business operation, rather than pick on only certain projects, he said.
"Although most of the large Indian IT companies may not grow much more than low to mid-teens, they'll offer an interesting entry point if the U.S. recession comes up-stage," Puri said. This, according to him, is mainly because of their reasonable pricing and expected continuation of earnings stream.
Puri is constructive on both large and mid-cap IT companies.
Other Sectors
Infrastructure, railways, defence and aviation are extremely valuable for nation building, but they are unfortunately difficult businesses to generate returns on a sustainable basis in emerging economies, Puri said.
The government's direct involvement with these spaces makes the growth slow and deters compounding growth from an investment standpoint in the long term, he said.