Impact of US Fed’s interest rate decision will be short-lived: Dipen Shah

By Mohammed Sabir

MUMBAI: The US government’s move to wind up the quantitative easing programme will have a negative impact on global markets, says Dipen Shah, Head- Private Client Group Research, Kotak Securities, in an email response to economictimes.com.

The negative impact will be short-lived, he adds. Here are excerpts of his interview:

Q: The government is planning to divest stake in Coal India and ONGC, among others. Will the tapering of quantitative easing in the US hurt the government’s fund-raising plans?

The QE program in the US is being gradually tapered down by the Federal Reserve. Thus, the markets are already discounting the possibility that the QE program will be completely wound up over the next few weeks.

To that extent, we do not foresee any surprise element on the same and do not expect a major reverse flow of liquidity post the winding up of the QE program.
However, if the US Fed decides to increase rates faster than expected, it may have a negative impact on the markets globally. We expect the impact, if any, to be short-lived.

Q: Should retail investors apply for these stocks in OFS given the sharp rise in their stock prices?

We cannot comment on this.

Q: What is your view on the metals sector? There are concerns of de-allocation of coal mines to Hindalco and JSPL. Then you have closure on iron ore mines in Jharkhand, which impacts steel makers such as Tata Steel, SAIL, etc.

The potential de-allocation of coal mines and suspension of work at iron ore mines have impacted the financials of metal companies, especially the ones which had captive mines. The economic scenario in the major market of China, in addition to EU, has kept the prices of ferrous metals low. In such a scenario, companies have found it difficult to pass on increase in raw material prices. Aluminium prices have been rising though, due to demand-supply imbalances.

We believe that this scenario will continue in the short term. However, we expect an early resolution of the mining issue (especially the coal mines). We also do not expect the Chinese and EU economies to deteriorate much from here. Hence, we have a positive outlook on most of the metals, over the medium term.

Q: There has been a sharp movement in mid-caps and small-caps recently. Do you think the rally in them will continue, given the valuations of most large caps look stretched?

Several mid-caps and small-caps have outperformed the benchmark indices in the recent past. Several such fundamentally sound companies with credible management still have reasonable potential to outperform the large caps.

One should pick these companies after a careful study and invest with a medium to long-term perspective.

Q: The rally has brought retail investors back in the market. However, there are many sitting on the fence. Should they enter now or will the market give them an opportunity post Diwali?

It is very difficult to time the market. The important thing in the market is to buy the right stocks. Good quality stocks will yield superior returns over a reasonable period of time.