‘Long-term eq­uity out­look is hugely pos­i­tive’

The Hindu Business Line - - MARKET WATCH - ASHWEN OJHA

Most Asian mar­kets ended higher on Thurs­day after the US Fed­eral Re­serve showed a guarded view to­wards in­fla­tion on Wed­nes­day Ex­cerpts:

How do you see the fi­nan­cial mar­kets shap­ing up from here?

The global eco­nomic en­vi­ron­ment is con­struc­tive. Re­fla­tion, i.e., global growth ac­cel­er­a­tion and rise in in­fla­tion are the themes that will play out go­ing ahead. Within eq­ui­ties, Euro Zone and Asia ex-Ja­pan are favourable for us.

The dol­lar is ex­pected to re­main weak for the next 12 months which is a good back­drop for flows to con­tinue com­ing in to emerg­ing mar­ket as­sets, both eq­uity and debt. In In­dia, while the long-term eq­uity out­look is hugely pos­i­tive, the up­side seems to have been priced in al­ready in the short run. The over­weight view has shifted to China

from In­dia.

OWill mar­kets be af­fected when cen­tral banks pull out liq­uid­ity?

Mar­kets are ex­pect­ing the pull­back from mone­tary stim­u­lus to be very grad­ual and hence, there is no panic. Even when money starts trick­ling out from bonds, we see it go­ing to­wards eq­uity mar­kets. As long as there are con­tin­ued cor­po­rate earn­ings, the mar­ket can con­tinue to do rea­son­ably well and val­u­a­tions can still go up. The wor­ry­ing fac­tor, es­pe­cially in terms of the Indian mar­ket, would be the kind of money which is chas­ing it.

How come in­fla­tion is not go­ing up? Do you think Trump has been able to bring in much of a change?

Partly, as there is ex­cess ca­pac­ity in prod­uct mar­kets. Ca­pac­ity util­i­sa­tion is not high (this is ap­pli­ca­ble for both In­dia and the US). Also, debt is very high in both economies as of now.

We are just ex­pect­ing a 50 ba­sis point rate hike in the com­ing year, which is a con­ser­va­tive out­look. In the US, tax cuts won’t hap­pen be­fore the debt ceil­ing, which needs to be watched.

Our view is, Trump stay­ing or not stay­ing would not mat­ter much to mar­kets.

How soon do you see the cor­po­rate in­vest­ment cy­cle in In­dia pick­ing up?

Maybe in the next quar­ter but not very ro­bust. In­stead, there is an ex­pec­ta­tion that gov­ern­ment spend­ing will pick up in a big way. In the short term, peo­ple are still try­ing to fig­ure out the nu­ances of the GST and the com­plex­ity af­fect­ing busi­ness and slow­ing down pro­duc­tiv­ity. This said, the sen­ti­ment abroad is very pos­i­tive for In­dia.

In­ter­na­tional in­vestors are look­ing at macro-eco­nomic sta­bil­ity which has im­proved con­sid­er­ably. In In­dia, just by im­prov­ing the mi­cro-eco­nomic fac­tors, which means mak­ing it eas­ier to do busi­ness, would re­flect in growth rate.

Are mar­kets dis­count­ing all the geopo­lit­i­cal ten­sions with re­gard to North Korea?

The time­line in­volv­ing North Korea has been short­ened after the test­ing of the hy­dro­gen bomb as the quicker they are nu­cle­arca­pable, the bet­ter it is for the mar­kets as then they would be ready to ne­go­ti­ate with other par­ties in­volved.

Is China still on the path to growth?

Cur­rently, the Chi­nese Premier is look­ing to build a power base whereas he be­comes pow­er­ful, his trusted aides are also gain­ing power. Once that is out of the way, the Pres­i­dent will try and se­cure his legacy. In or­der to do that he has to ad­dress the debt prob­lem and that should be pri­or­ity num­ber one. To be hon­est, noth­ing has been done yet to solve the is­sue. They have tried it in a min­i­mal man­ner with shadow bank­ing and few other things but they have not really suc­ceeded.

STEVE BRICE Chief In­vest­ment Strate­gist, Group Wealth Man­age­ment, Stan­dard Char­tered YZ

As long as there are con­tin­ued cor­po­rate earn­ings, the mar­ket can con­tinue to do rea­son­ably well and val­u­a­tions can still go up

Fed move helps AFP “Trump stay­ing or not stay­ing in of­fice would not mat­ter much to mar­kets,” says Steve Brice, Chief In­vest­ment Strate­gist, Group Wealth Man­age­ment, Stan­dard Char­tered.

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