Do you believe it is the right times to start the process of de-dollarise the world economy as we see the world economy unintentionally importing US monetary policy and having unwanted consequences on domestic economies?
I am not sure about the success of any effort to de-dollarise the world economy at this stage. It is a fact that US Monetary Policy has an outsized impact on world economy leading to significant impact on the economies of other developed markets and emerging markets. However, just de-dollarising may not serve the purpose as US investors continue to dominate world markets and US currency is still considered a safe haven in times of turmoil. In fact, US economy continues to remain significantly larger than the other developed and developing market economies. The trust in Dollar may have eroded a bit due to indiscriminate use of sanctions for geo-political objectives; however, the allure still remains. Also, the other currencies are either not trustworthy (e.g. Chinese currency) or too small (Swiss Franc) to provide any viable alternate option.
How do you see the current cut in crude output by OPEC impacting world economy? Looking at India’s higher dependence on imports, is it going to de-rail its growth?
Cut in crude output by OPEC will surely have an impact of increasing global oil prices and thus, have negative impact the economies of the oil importing countries. At this stage, it would be difficult to comment on the impact of such increase in crude oil prices on Indian economy as relatively cheaper Russian oil may cushion some of the negative impact. The situation will continue to remain volatile on account of geo-political tension and will require deft handling of both international politics as well as domestic economy to withstand the impact of crude oil price increase.
Indian market is currently trading at a relative valuation, which is the highest among emerging markets. Do you see it correcting anytime soon?
Indian markets will remain volatile on the back of global volatility and general ‘risk off’ mood prevailing amongst global investors. However, there is a silver lining for the Indian markets. Global Emerging Market Funds had raised huge amount of money over the last few years and a significant part of the same was deployed in China till recently. The current turmoil in China has led to significant discomfort amongst the global investors and we suspect that a large chunk of emerging market funds invested in China would seek to exit at the earliest available opportunity. A part of this will surely get redeployed in India and this may lead to significant buoyancy in Indian markets in the near future.
Do you see currency depreciation and higher bond yield impacting equity returns going ahead?
Currency depreciation and higher bond yields are definitely recipes for lower equity return. However, due to reasons explained above, Indian equity market may show unexpected buoyancy. Also, it is expected that with a decent monsoon, food grains and vegetable prices will start coming down leading to inflation levels in India significantly coming down resulting in possible pause by RBI in its rate hiking cycle.
How do you see the Credit Suisse crisis panning out and will it have a systemic impact on global financial market?
It is unlikely that Credit Suisse crisis will have a systematic impact on global financial markets. Of course, it is a matter of concern and corrective measures need to be taken. However, this may not lead to any structural damage to the global financial markets.
What are the sectors you are betting?
We are betting on domestic focused sectors at this stage. We remain bullish on Cement, Infrastructure, Construction and other sectors having focus on domestic consumption and enjoying domestic tailwinds.
Please suggest some portfolio stocks with one year investment horizon.
Keeping in line with the above theme, we like industry leaders in Cement (UltraTech) and Construction/Engineering (Larsen & Toubro) for investment by retail investors with one year time horizon.