Fed Intends To Slow Down Markets By Whatever Means Necessary, Says Avendus' Sanghavi

The U.S. Federal Reserve, in a bid to tame inflation, will use whatever tools necessary to slow the economy and, consequently, the markets, according to Vaibhav Sanghavi of Avendus Capital Alternate Strategies .

"Fed is trying to correct the stance of the market," Sanghavi, co-chief executive officer at Avendus Capital Alternate Strategies told BQ Prime's Niraj Shah.

Currently, the U.S. central bank is hiking interest rates in a bid to tame inflation. If necessary, it may further use quantitative tightening, he said.

"We all know that from history that the market should not fight the Fed." Sanghavi said. "And the more you keep fighting, the uglier it becomes at a later stage for the market to grapple with."

The Federal Reserve believes that "shorter-term pain though smaller, is far better than the longer-term pain to tackle inflation", he said.

Though markets are expected to remain volatile in the near term, Indian stock benchmarks may remain relatively elevated compared with its global peers, according to Sanghavi, who prior to Avendus was the managing director at Ambit Investment Advisors.

There is potential "pain" for India in the next three to four months, he said. However, after that, the country's growth and its potential to grow due to its demography will continue to attract foreign investors.

India’s Nifty 50 saw the longest buying stretch by foreign portfolio investors so far this year, that lasted 13 days from July 28 to Aug. 17.

“While people will continue to talk about valuations being elevated," he said, "But, we will continue to be at an elevated valuation for a very prolonged period of time as well."

Moreover, even as investors “take out money from risk assets”, there is a slight re-balancing in India as investors pour money into emerging markets except China. This may help India soften the downfall, he said.

The Covid-19 induced lockdown in Chinese megacity Chengdu will remain for at least four days, which is likely to further slowdown its economy.

Consumer-driven cyclicals are expected to have a “secular story” in the next three to five years, according to Sanghavi.

He is also positive on infrastructure, industrials and banking, including private banks that will continue to perform.

Meanwhile, he is wary about the global commodities, metals and mining sectors as they may “not perform like they have in the past”.

Avendus Capital will continue to focus on the large caps for the next two-three months, he said.