Daily Voice | If inflation and high interest rates continue, Mihir Vora of Trust MF anticipates a severe recession in the US

 Daily Voice | If inflation and high interest rates continue, Mihir Vora of Trust MF anticipates a severe recession in the US

According to Mihir Vora, interest rates in the US and other wealthy nations are likely to be higher for an extended period of time since both inflation and growth—particularly growth—are greater than anticipated.

According to Mihir Vora, chief investment officer of Trust Mutual Fund, if the high interest rate and inflationary environment persist, there would likely be a significant slowdown or recession in the US economy.

In an interview with Moneycontrol, he said he thought interest rates in the US and the developed world will probably stay higher for a longer period of time since growth and inflation were both stronger than anticipated, particularly growth.

Having worked in the financial industry for over thirty years, Vora is optimistic about the electricity sector. "Renewables is undoubtedly the high growth space but there is bound to be demand for conventional energy sources too if the GDP keeps on increasing at a healthy pace," according to him.

Takeaways from the conversation:

In light of the two current conflicts and the economic statistics, do you think there's a chance the US may experience a recession?

Sure. Given that both inflation and growth—particularly growth—have exceeded expectations, interest rates in the US and the developed world are likely to stay higher for an extended period of time. The 10- and 30-year bond rates are rising as a result of the bond markets reflecting this viewpoint. Currently at about 5 percent, a level not seen in the previous 15 to 20 years.

While real estate and investments are winding down, total spending is still high. If these circumstances of high inflation and high interest rates persist, there is a good chance that we will see a severe downturn, if not a recession, in the US economy.

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Retail investors worry about their investments during recessions. Do you believe they ought to keep on with their SIPs?

Yes, without a doubt. SIPs are primarily advised in order to address volatility. Although you will ultimately invest a portion of your money at lower market prices and a portion at greater ones, the long-term compounding gains will build up. Thus, any methodical investing choices made in the past have to be kept up to date.

Do you anticipate that the pullback from record high levels will be more than 10%?

An additional 5% adjustment is not a huge problem since we previously witnessed a 5% corrective. Though that being stated, there could be some additional drawbacks, nothing unusual. Five to ten percent drawdowns are typical, occurring at least once or twice a year.

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With major declines from record high levels, where would you invest your hard-earned money?

I would argue that the fixed income market has heated up because interest rates in India have increased. Therefore, in addition to stocks, I would advise allocating some money to fixed income as well. Furthermore, considering the many geopolitical risks and global currency volatility, a minor allocation to gold may also be considered.

Do you think the smart meter topic has merit?

Overall, I am optimistic about the electricity industry. Although the need for conventional energy will still exist if the GDP grows at a reasonable rate, renewable energy is undoubtedly the sector with the most development potential.

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Furthermore, a significant revamp of the transmission and distribution networks is required because to the growing supply from renewable sources. Additionally, you want to discourage using power at night or other times when renewable energy sources are less reliable. In order to apply differential pricing based on the time of day that energy is used, the metering and distribution systems must be "smart." Additionally, smart meters lessen theft. I thus foresee large investments in this market.

Even with the most recent adjustments, do you still see foam in the midcap and smallcap spaces?

I wouldn't use the same brush to paint all of the sectors or stocks. The values of midcaps and smallcaps differ significantly from one another. Yes, there are still expensive firms, and the market is now discounting too much growth that may not materialize, but the midcap and smallcap sectors will always be a gold mine for stock pickers. This is due to the fact that the majority of the dynamic industries from which we anticipate rapid development are limited to the mid- and small-sized market.

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For instance, the private sector is starting to make more investments, and the order books of many capital goods industries are growing at a fairly healthy rate. The Nifty50 and largecap indexes do not include stocks related to renewable energy, electricity transmission and distribution, defense, electronics and durable production, both of China-plus-one theme, especially manufacturing beneficiaries of production-linked programs.

Additionally, a large number of mid- and small-cap chemical and pharmaceutical businesses are investing heavily in growing their capabilities for both the local market and exports.

Do you think this year's FII outflow will continue?

December often sees a slowdown in FII activity due to the western fund managers' vacations. There could be persistent risk-off attitudes as long as the circumstances in Israel and the Ukraine remain tense. Therefore, there may be a few more weeks of selling in November before things start to settle down.

What are your thoughts on the September quarter's earnings?

Thus far, overall profits have met expectations. It is decelerating. While certain banks have seen modest margin compression, banks are doing rather well overall. Asset quality is still high. FMCG is poor, while commodity businesses have had inconsistent performance. After the release of all the reports, we do not see any notable increases or decreases to the Nifty earnings expectations.