In the second half of this year, apart from US election, what else could be at play? What do you think could be the playbook because liquidity is going to be abundant, inflation for the moment has taken a backseat, fears of a hard landing they have taken a backseat. So, it is more like a Goldilocks scenario now.
Mark Matthews: It is, although to come back to what I said at the beginning, my concern is the market is too aggressive on interest rate cuts and the trajectory will not be as big as the market is currently expecting. The other thing is that the third quarter earnings season will start in three weeks and the expectations for earnings in the third quarter have come down quite dramatically, from 9% if memory serves me right about a month ago to just around 4.5% now, that seems to be the cuts in consensus forecasts seem to have been quite broad across the sector.
So, it will also be interesting to see when we get the guidance from S&P 500 companies, will they be indicating that there is any cause for concern? I do not think so, actually. I mean, if you look at the consensus forecast for the fourth quarter and then this first and second quarter of next year, they bounce back up to 10%.
But nevertheless, that sharp downward revision in third quarter consensus earnings forecasts is something that needs to be explained, why is it that all of a sudden analysts have taken their forecasts for the third quarter down so much.
Why is the market across the board moving in a synchronised manner? Gold is supposed to do well when there is fear of inflation. Bitcoin is supposed to do well when there is problem in the world, but gold and Bitcoin are moving together. Equities are supposed to do well when there is growth in the world and bonds are supposed to do well when there is slowdown in the world. It is just so nice. Nobody is complaining. Too good to be true, is not it?
Mark Matthews: Well, I suppose that among those, a few have got to be right and a few have got to be wrong. I think you could explain each one, really. I mean, falling interest rates is good for bonds and it is good for stocks as well. And we are not looking at a recession next year. Recession would imply that treasuries do very well, but we are just looking for, I think, still slightly under 2% GDP growth in the United States and then earnings growth, as I said, in the third quarter does come down to the mid-single digits but then bounces back to about 10% in the next three quarters. And gold and Bitcoin, I guess, are going up because the dollar is going down. So, they all can be explained in a way. But I know what you are saying, it does seem a bit too good to be true.
When you talk about India, while you just flagged off your views for Asia equities, but given the valuation concerns, surely, and in large pocket right now, it is getting a little difficult to find out anything that is undervalued here in India, sectorally what do you think is going to do well? We have seen banks make quite a comeback, especially the large private banks which have been lagging the rest of the market for quite some time now. Is that the space to be bullish on and also because of the high FII participation?
Mark Matthews: I do think so. They are not expensive. They have lagged for no particular reason. The fundamentals look very good for the private banks. But as you know with the exception of ICICI, they have not been good performers.
So, yes, I think that is a place to be. I also think that the move up in IT is interesting, not really based on any news, but clearly a signal of some kind of rotation, as is the case for consumer durables and staples, which I guess you could explain a little more by some green shoots in the rural sector of India.
But anyway, what I would say is that the market is expensive. I think that in the next few months, it will probably move in about a plus or minus 5% band and we will get within that big rotation.
My sense is the rotation should be into, as I said earlier, IT, private banks, consumer, durables and staples, those kind of things that have lagged.
And then PSUs, there has been so much good news imbued in them that any miss on earnings would be matched by underperformance so that is how I see it over the next few months.
And just in particular, when we were to talk about the earnings, you believe that any earnings disappointment could not be taken well. Are there any particular pockets that you expect the earnings disappointment to be more evident than the rest?
Mark Matthews: No, not off the top of my head. I am sorry. But that is where the risk is in the PSUs.
