Dalal Street Voice: Rupee likely to weaken if crude prices continue to remain high in a sustained manner: Satish Ramanathan of JM Financial

Satish Ramanathan, MD & CIO – Equity, JM Financial Asset Management Ltd said that Rupee has seen some pressure in recent times from Rs 74.63 to Rs 77.08 and has since appreciated a bit.  

Ramanathan has a rich and varied experience of around 3 decades and joins the AMC from Tattva Capital which was his entrepreneurial endeavor. He started his career with TATA Economic Consultancy Services in 1992 and has subsequently worked with ICICI Securities, Franklin Templeton AMC, and Sundaram AMC.

In an interview with Zeebiz's Kshitij Anand, Ramanathan said that he expects sustained currency weakness only if crude prices continue to remain very high in a sustained manner. Edited excerpts:

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Q) What does the BJP win in 4 states mean for markets, economy and reforms?

A) We generally do not comment on political developments. The BJP win has been along expected lines and will hopefully aid the continued process of development and infrastructure spending.

Q) The war-like scenario must have wiped out a good 5-10% of the investor portfolio in a matter of weeks. What advice would you like to give to investors? Should one stay put, add on dips or cash out – what does the history suggest?

A) The intense fear of a fierce war has diminished to a considerable extent. The ramifications, however, are being felt across several commodities and supply chains.  

Will these factors push inflation and increase shortages in many commodities is the primary question now?  Will high inflation push Central Banks to increase rates and impact equity assets is the next question?

Q) If someone plans to put in Rs 10L after the recent double-digit fall seen in benchmark indices from 52-week highs. What is the right asset allocation strategy considering someone is in the age bracket of 30-45 years of age? Also, should one do lump sum or STP?

A) In period of high volatility such as the current scenario, we find large-cap investments are less prone to panic.  

As regards STP/SIP we believe this is dependent on individual risk and one needs to consult their Financial Advisor before undertaking such investment decisions.

Q) With interest rates likely to head North – what is the right strategy for MF investors? Should they look at tweaking their asset allocation?

A) We have noticed that Central Banks' are cautious in raising rates primarily on account of two factors:  a) Whether inflation is deeply entrenched or is transient due to supply chain bottlenecks b) whether an increase in rates will hamper the nascent growth post-COVID.  

We believe that Central Banks will take their own decisions rather than act in a concerted manner as in the past.  

As far as India is concerned, RBI seems to be cautious in raising rates currently, and we expect liquidity to be adequate as growth in corporate earnings remain modest.  

As regards, MF investors' are concerned they will have to act in reducing the volatility of their portfolios- both in debt and equity.

Q) Retail investors reaffirmed their faith in equities amid volatility (geopolitical towards later part of the month) as equity funds saw a net increase of more than Rs 19000 cr in Feb. What is your view and do you think this war-like scenario could result in a slowdown in the flows?

A) Retail investors are governed by domestically available options to invest. Under the current conditions of negative real interest rates for retail savers, equity still offers a good option given liquidity and hedge against inflation.

Q) Crude above $100 – what is the kind of impact you foresee on markets, economy, and India Inc. in upcoming quarters?

A) Higher crude prices will impact logistics, input costs, and household budgets.  We need to observe as to whether Crude prices sustain above 100 dollars for a sustained period of time or it is a short-term phenomenon.  

That said, margins in some sectors such as cement have been facing headwinds for some period of time on account of higher energy costs.

Although alternate energy has been growing in the country, it has not been adequate to reduce our dependence on coal or crude oil as the primary source of energy.  

In some sectors, we have seen the best of margins behind us, and they may need to operate below the peak margins for a sustained period of time.

Q) What is your take on the rupee? Which sectors could get impacted the most from recent volatility?

A) Rupee has seen some pressure in recent times from Rs 74.63 to Rs77.08 and has since appreciated a bit.  As such, we expect sustained currency weakness only if crude prices continue to remain very high in a sustained manner.  

What is encouraging is that in spite of higher oil prices and FPI outflows, the currency has not been as volatile as anticipated.  We have been positive about the IT sector as a potential beneficiary of currency weakness.  

We also expect export-oriented businesses to benefit from the currency weakness as also the changing geopolitical situation.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)