Buying the dip is not a smart strategy in the current climate as a trio of factors amalgamate—weaker growth outlook, rising bond yields and surging market risk premium, according to Dhananjay Sinha of Systematix Group.
These three factors will gain ground over the next year and a half, affecting valuations, Sinha, director and head-research, strategy and economics at Systematix Group, said in an interview with BQ Prime’s Niraj Shah.
Market outlook will be a function of growth, which is likely to taper down, as seen in the projections of most multinational agencies, Sinha said.
“Most of the multinational multilateral agencies have actually been scaling down growth forecast for global economy to somewhere around 2.5-3%, and India is not immune,” he said. “The sensitivity of India’s growth to global trade has actually risen over the last 10 years… there will be a spillover effect on both [earnings and growth] in India as well.”
Growth estimates will be scaled down by around 15-20% for the fiscals 2023 and 2024, he said. India’s real GDP growth will be in the range of 5-5.5%, he said, much lower than RBI’s estimates of 7%. The risk to growth is definitely there, Sinha said.
While in the short-term, bond yields have been on the rise. Even as U.S. 10-year yields are close to 4%, and India 10-year yield is around 7.5%. “From a valuation standpoint… the risk-free premium is rising,” Sinha said.
Meanwhile, there is also a rise in market risk premium, he said. “Biases are on the higher side, given how the weeks are moving globally. The fact that there is global tightening as well in terms of liquidity, the U.S. rates are expected to go up to 4.6-5%. All those things will have an impact on the overall valuation,” Sinha said.