Mr. Taher Badshah

Chief Investment Officer - Equities, Invesco Mutual Fund

Mr. Taher has over 24 years’ of experience in the Indian equity markets. In his role as Chief Investment Officer – Equities, he is responsible for the equity management function at the firm. He joins Invesco - India from Motilal Oswal Asset Management where he was the Head of Equities, responsible for leading the equity investment team. In the past, he has also worked with companies like Kotak Mahindra Investment Advisors, ICICI Prudential Asset Management, Alliance Capital Asset Management, etc. He holds Masters in Management Studies (MMS), with specialization in finance from S.P. Jain Institute of Management and a B.E. degree in Electronics from the University of Mumbai.

Q. Mid-cap and small-cap indices underperformed large-cap and fell by 6.5% and 8.3% respectively. This has made investors worried about their investments in mid cap and small cap schemes. What is your advice to these investors?

Answer: Mid and small cap stocks tend to reflect wider movements versus the large cap peer during periods of uncertainty as well as exuberance.

This global uncertainty and risk off trade due to inflation led slowdown led to underperformance of the mid and small cap indices. However, the valuations are closer to the long term mean and earning growth is expected to remain strong for many companies in the mid and small cap space. Such period of underperformance may be used to increase allocation to mid and small caps.

Q. In June we saw markets bottomed out and now the market is in the bull run. Do you think it will last for a while? How are you analyzing things right now?

Answer: There are several reasons that can be attributed to the improved market sentiment. Since inflation has been the biggest bugbear for the market in recent times, easing of commodity prices and global supply chain pressures – presumably led by moderating Covid conditions and gradual re-opening of important Chinese cities has clearly been the most important factor. Actual inflation data, at least in the US and in India, has seen some retreat too led by cooling of energy prices along with certain Govt interventions. This has had the salutary effect of even keeping medium-term inflation expectations relatively better anchored thereby raising market’s confidence on the ability of global central banks to achieve faster normalization of monetary policy.

However, the hawkish rhetoric from Jackson Hole, have moved up the long end of the yield curve, creating extra room for further tightening and thereby putting pressure on equity markets.

Q. The US Fed is likely to go for steeper rate hikes. How will it impact interest rates in India as the Fed often set the tone for central banks across the globe?

Answer: US currently is struggling with inflation led by higher energy and fuel prices and geopolitical standoff has compounded matters further. As Fed tries to tame inflation the threat of an economic recession is still looming large amid warnings from Fed officials that the fight against inflation is far from over. The Fed has already increased rates by 225 bps in the current calendar year; we expect the FED may further hike rates anywhere between 50 bps-75 bps. We do see similar level of rate hikes for India as well.

Q. How are you playing various themes across the portfolio & which sectors / segments are you underweight and overweight?

Answer: After a brief hiccup due to the Russia-Ukraine conflict, our much-favored preference towards sectors and companies that are users of commodities v/s producers of commodities is finally playing out well and is expected to extend itself for some more time. While globally exposed sectors like IT and metal/oil commodities have now turned lot more palatable in recent weeks on valuations, we remain watchful and wait for probable moderation in earnings expectations before turning incrementally constructive. Meanwhile, banks, industrials, parts of consumption remain our 'go to' sectors for additional allocation.

Q. High inflation and interest rates are considered extremely negative for the markets. How do you view the situation?

Answer: The battle on inflation in developed markets may be quite prolonged due to significantly above-average negative real rates of interest, though recent growth/inflation dynamic drives hope of faster return to neutrality. Even therein, while the US has seen a modest drop in inflation, much of the Eurozone and UK continue to see very elevated inflation. Notwithstanding the above, we reckon the current rate of inflation in India is only marginally higher than its 20-year average with real rates modestly positive, and hence should have lesser impact on our domestic consumer behavior and growth. India’s monetary and fiscal policy co-ordination will likely allow the RBI to reach neutral zone much sooner, thereby taking the risk of structurally higher inflation and/or significant deterioration in growth outlook, off the table. However, the recent recovery in the market, and given that most of the known risks cannot be said to have been fully neutralized, makes risk-reward now relatively balanced with valuations once again having crept back to above long-term averages from some nominal discount until few weeks ago. In our view, Indian markets would stay relatively resilient but would need to clearly see peak inflation in developed economies and the risk of recession meaningfully abate before new highs can be scaled in 2022.

Q. If there is one thing that you would want young investors to learn from your experience, what would it be?

Answer: There have been uncertain scenarios in the past and such scenarios will emerge even in future. Use the rear-view mirror as a guidance but also don’t lose sight of the road ahead. It is important to not lose sight of the big picture during period of near-term uncertainty. Adversity also brings opportunity and hence one needs to tactically use these corrections to invest in equity markets to create wealth over the longer term.

Imp.Note: We are registered NJ Wealth Partners and this interview published is sourced from NJ Wealth with due permissions. Reproduction of this interview/article/content in any form or medium by any means without prior written permissions of NJ India Invest Pvt. Ltd. is strictly prohibited.

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