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Bullish on markets, risk assets; monetary tightening biggest risk for India: Citi

market | Oct 28, 2021 1:04 PM IST

Bullish on markets, risk assets; monetary tightening biggest risk for India: Citi

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Mohammed Apabhai, Managing Director, Head-Asia Pacific Trading Strategies at Citi, discussed the outlook and the sectors that look attractive as we get into Samvat 2078, in an interview with CNBC-TV18.

It has been a year of big returns in the market. From Diwali of last year, the Nifty is up 43 percent and the midcaps have surged 70 percent in the same period.

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To discuss the outlook and the sectors that look attractive as we get into Samvat 2078, CNBC-TV18 spoke Mohammed Apabhai, Managing Director, Head-Asia Pacific Trading Strategies at Citi.
On markets and liquidity, Apabhai said, “I have been basically bullish on markets and on risk assets since about March 2020 and what we have been arguing is that equity markets and risk assets in general would continue rallying, while central banks would continue providing liquidity. That is pretty much what happened for the last 18 months. What is now happening is that the central bankers are starting to turn and change their views. But even though they are changing their views, and they are talking about interest rates, all of these things are still another six months away. So when you are looking at that provision of liquidity, it is going to continue at least until February, March 2022.”
With regard to risk for emerging markets, he said the biggest risk is monetary tightening.
“The risks that I can see for India- one is that we continue to be bullish broadly on the oil price. In a very bullish scenario, we wouldn't be surprised to see $99 on Brent crude, that is certainly a trading view that could happen. But I think the biggest risks that you have, is really following a period of relatively loose monetary policy. Especially in India, what you are starting to see is tighter monetary policy.”
He added, “The third is regulatory risk. In China, of course, we have seen a lot more regulatory risk than what we have in India and the fourth one is systemic risk, which is seen more in China and India.”
On inflationary pressure, Apabhai said, “When I am looking at Indian inflation, what I actually see is a picture of relatively subdued inflationary pressures. I mean, when you have US CPI at 5.2 percent, then India around 5 percent on CPI doesn't actually look that bad. I think, yes, there are inflationary pressures, there are supply chain issues, and we believe that these are relatively short-term, we think that they are relatively transient.”
“The market in the US, for example, is factoring in something like two or three rate hikes within the next 18 months, which we think is going to be too high and already the US term structure is starting to twist a little bit, and it is starting to flatten, which shows that the economy is not able to take that level of high interest rate. So I think there is going to be some inflationary pressure. But I think as the effects of COVID start to normalise, we think that a lot of those inflationary pressures are relatively short term.”
On industrial metals, he said, “Overall, industrial metals will be following the general economic cycle, which is generally a bullish view until the first quarter of 2022 and then after that, it is probably going to be a bit more of a concern.”
“The place I think, where there is actually the most opportunity, either from the bull side or the bear side, is actually in China, because in China, I am still bearish. I have been bearish on that market for a little while now, probably since January or February of this year. It does feel like there is one more leg down to come. But that is really the place where investors should be watching. I think in 2022, what we need to watch out for is going to be the point where the market becomes very concerned about growth, maybe it is because we will be looking at imminent rate hikes. But I think the point is that from March 2020, until about March 2022, we stay long.”
On S&P and Nifty Index, Apabhai said, “The projection for the S&P, for example, is for the market to reach a level of 4888. So I am not going to tell you just be bullish, I am going to tell you to be sort of bullish up to this level, our numbers can't justify a level of the market above that level. Correspondingly, in India, the Nifty Index should get to around 19,966, which is around the sort of 20,000 mark.”
For full interview, watch accompanying video...
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