Inflation remains the biggest concern for markets globally, and the most crucial aspect for markets will be liquidity and sustenance of systematic investment plan (SIP) flows. In an interview to Siddhant Mishra, Jaideep Hansraj, MD and CEO of Kotak Securities, says Indian banks won’t face an SVB moment thanks to the strong regulatory framework. Excerpts:
How do you see earnings pan out in Q4?
From the ‘India story’ perspective, we’ll perform better than the rest of the world. We’ll be among the best-performing economies, if not the best, despite people arguing that corporate India could see some pain on account of the high interest rate regime.
There will be bouts of pain in certain sectors and bouts of happiness in others. From a market perspective, however, the most crucial aspect would be liquidity and SIPs sustaining at current levels.
Rising geopolitical tensions are adding to volatility. How will the markets take it?
We’ve seen the biggest one ― the Russia-Ukraine war ― going on for 13 months now. Others issues, such as China’s conflicts with the US and Taiwan, and tensions around Korea, are smaller in comparison. From a markets’ point of view, the biggest worry is inflation, across the world. The only way to control it is interest rates, but where that leads the markets needs to be seen. It is not just an India phenomenon, as India is relatively in a better situation.
With the US heading towards more rate hikes, the RBI may have to follow suit. Will that come as a shock to the markets, or have interest rates in India peaked?
We’ve not hit a peak yet. The direction will depend on what other central banks decide, because we can’t have a situation where others are hiking rates but we aren’t. Ultimately, inflation will be the driver.
Do you see Indian indices outperforming emerging market peers this year?
Comparatively, we’ll fare better. What remains to be seen is whether we gain more or fall less compared with others. It’s difficult to take a holistic view with so much happening around the world, as every factor is a variable. If we see inflation receding or being stable and jobs data not showing heavy fluctuation, we can be confident that interest rates will come down. But there’s no such data coming in yet.
Banking stocks have been dealt a blow following events in the US. Is the reaction purely sentimental or are we staring at a Lehman 2.0?
Totally sentimental. Indian banks don’t have the same problems; our regulators have managed it fantastically. The decline in the Bank Nifty
Which sectors are you confident on this year?
Defence/defence equipment looks good, as it is likely that we’ll spend big on them. Further, given the level of construction we are seeing in terms of ports, with infra looks promising as well, the government will not stop spending. Consumer stocks could be an area of concern, as rising interest rates would mean less money at the hands of investors. However, I see real estate doing well. Unsold inventory has drastically fallen. So, at least, bigger players will fare better.
How have discount brokers changed the dynamics for the industry?
It has led to getting our act right on digital. There’s a generation of people comfortable with placing orders via dealers. Then there’s a generation that prefers to do it on its own. To cater to both sets, one needs to do what it takes ― which is why we have a hybrid broking model.
While the physical part of the business has remained static, the digital part has grown multifold. This is why tech-led brokerages have captured a larger share of the market, as the new set of customers coming in want better tech and lower costs.
Sebi has introduced a slew of proposals and reforms of late. Is the pace of regulation overwhelming for the industry?
When the pace of reforms was slow, everyone criticised it. Now they are saying that the regulator is going too fast. While it might be doing things at a faster pace, it has created a far safer market. What worries me is falling cash volumes, as lower volumes will bother institutional investors. But options are going through the roof, which are leveraged. This shows people are getting into the riskier part of business. This is something all of us and the regulators need to think about.
How will extension in trading hours affect brokerages?
It won’t matter if tech capabilities are strong. The only change would be traders working for a couple of hours more. What would be better is to start earlier and capture the Singapore/Hong Kong legs of the market, instead of closing later. What this could result in is a market that stays open for longer and people trade on their own. The regulators have to manage the settlement system, which is a bigger issue.