A Strong Ru­pee is More De­sir­able Than Rate Cut

The Economic Times - - Money -

and if the US be­lieves that they will be great again through it, they are dream­ing. Through pro­tec­tion­ism, you ac­tu­ally dis­turb the mar­ket econ­omy. Mak­ing Amer­ica great again re­quires many other mea­sures but cer­tainly not pro­tec­tion­ism.

Will the US Fed­eral Re­serve be able to hike rates three times this year? The Fed may in­crease in­ter­est rates at some point, but they will prob­a­bly leave real rates neg­a­tive for a long time. We have had many Amer­i­can prop­erty prices al­ready de­clin­ing and also rents de­clin­ing, which essen­tially would rather in­di­cate weak­ness in the econ­omy than strength. When­ever the next re­ces­sion comes, the Fed­eral Re­serve in my view will liquify the sys­tem with some sort of quan­ti­ta­tive eas­ing. They may not call it QE, but the im­pact will be the same.

So what would be your stance on emerg­ing mar­kets? For the next 10 years, as I have said in the case of In­dia, one will make more money in emerg­ing mar­kets than in the US. By his­tor­i­cal stan­dards, the US mar­kets are ex­tremely ex­pen­sive and there is hardly any earn­ings growth.

In the last five years, we have seen an enor­mous in­flow into ETF (ex­change traded funds) and in­dex funds and that has boosted large mar­ket cap­i­tal­i­sa­tion stocks in all mar­kets, in­clud­ing In­dia. The larger com­pa­nies are rel­a­tively ex­pen­sive in In­dia. On the other hand, you have a lot of smaller com­pa­nies that have been over­looked and ne­glected.

Do you think the RBI is likely to cut rates soon? For the av­er­age In­dian, a sta­ble or a strong ru­pee is much more de­sir­able than a rate cut that will boost the stock mar­ket, from which not even 3% of the pop­u­la­tion ben­e­fits.

Do you think gains in com­mod­ity prices will sus­tain go­ing ahead? The most at­trac­tive sec­tor in com­modi­ties is prob­a­bly agri­cul­tural com­modi­ties — soy­bean, rub­ber, su­gar, etc.— their prices may still go higher. The pre­cious met­als are also at­trac­tive for a sim­ple rea­son that the poli­cies that the cen­tral banks have em­barked upon, mainly money print­ing, will be very dif­fi­cult to ter­mi­nate.

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