- 3 months ago
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00:00So, kind of like, square that for us when it comes to the prospects for the Indian market.
00:05So we started with this year on a macro recovery and the growth recovery for India,
00:10but that story got short-circuited.
00:13One, because of the West Asia conflict, and second, the higher oil prices overall.
00:17So now we are in a situation where you are seeing a two-speed recovery within the India per se,
00:22or the typical what we learned under COVID, the K-shaped recovery that has started emerging.
00:26The ongoing earning season, it is not giving us a true picture of what is about to come,
00:31because there will be definitely some amount of a hit coming to the growth, coming to the macro variables overall.
00:37And it will either show up in the form of a demand destruction, or margin reduction,
00:42or even, I will say, operational, where smaller companies and even some are not operating because of energy not available.
00:48And then lastly, which people cannot count, the second-order impact,
00:51which means the consensus earning growth number, which is right now at around 16% mark,
00:57can about to get downgraded further.
00:59So we are estimating number should be around 11%,
01:02but in case if this Hormuz, which is shut, prolongs for longer,
01:08then the pain could be much more longer.
01:09Right now it is fair to say first quarter, F527 will be a washout,
01:13but if situation prolongs, second quarter, F527 can come also under trouble.
01:19So despite the sell-off we are seeing in India right now,
01:22it's still not reflected what's possibly coming.
01:26Not yet. Not yet, because valuations are still higher, growth is sluggish,
01:30and most importantly, the narrative around the AI impact on unemployment
01:35or what will happen to the IT sector is still being talked,
01:40but not fully in the price overall.
01:42So sell India still, I mean, it's being supported right now by the retail investors.
01:47You've got to wonder how long that can be maintained.
01:50You don't have too much alternatives over here.
01:53When we look at the tax advantage when you invest into the equities
01:57compared to fixed income, compared to real estate overall,
02:00you have still advantages investing into the equity from the longer-term lens,
02:0412 months and beyond, and that's what retail is trying to do.
02:07It is not a broad-based country sell story,
02:09but there are certain amount of a sector which will take a hit,
02:13and consumption is one of them, which is on the receiving end.
02:16But the sector which are being supported by the policymaker,
02:19like we saw in the budget, that the new age CapEx-oriented sector,
02:22new age industries on AI, robotics and tech,
02:25they may still see the growth.
02:26So hence, this is the reason why there will be a cohort of domestic cyclicals,
02:30which we are positive on.
02:31You will definitely make a lot of money on that,
02:33but the sectors which are on the receiving end,
02:36hit by the urban consumption slowdown,
02:38or maybe ruler-taking hit due to El Nino,
02:41that is where the problem lies for India.
02:43We're seeing a re-evaluation story in the Indian market
02:46against a backdrop of money gravitating towards China.
02:50Yes.
02:50So, might that accelerate the sales that we're seeing in India?
02:56Right now, it is just as a starting point or a cusp.
02:59It has not fully happened yet overall.
03:02We need more evidence because right now,
03:05investors are still skeptical whether they will get an equal
03:09or a higher amount of growth.
03:11What you are generating from the other North Asia peers,
03:13that is Japan, Korea and Taiwan,
03:15because of the AI CapEx and the tech hardware team.
03:19But beyond this team, what investors were looking for,
03:21property recovery, consumer sentiment getting better overall,
03:25policymaker support,
03:26that repairing sign has started appearing in China.
03:30This is what people are waiting since 2021-2022.
03:33That is what is now eluding within the conference also we are seeing.
03:37People are talking about, yes, the old economy slowly,
03:40steadily making a comeback.
03:41The comeback needs to get converted into earnings growth.
03:44If you get a high-teens, double-digit earning growth,
03:47then, yes, you can say China sustainably back in the picture.
03:51For India, before we move on to China,
03:54the rupee keeps testing new lows no matter what the government does,
03:59no matter what measures are being implemented.
04:01Where is the floor?
04:02I mean, what would it take for the Indian rupee to finally find a floor?
04:06Difficult to ascertain the floor in this environment
04:08because you are seeing what's happening in the global bond markets overall
04:13with the way rates are reacting.
04:14Top of it, with the current account deficit number being higher,
04:18import bills higher because of oil overall,
04:21you will need big bazooka kind of a measure.
04:25Such as?
04:25Be it on the SCNR deposit side, be it on the swap programs,
04:30which we have just seen overall.
04:32In some sense, we need to do some demand destruction also,
04:35which we are seeing by the gasoline and diesel hike
04:37that has happened for the last few days overall.
04:40That needs to continue overall.
04:42That can achieve the balance or get you the oil price import level,
04:46what country wants over there as such.
04:49Till then, most of the heavy lifting has to be done by the RBI
04:52in terms of what they are guiding to the bond investors,
04:55to the fixed income markets overall.
04:57We saw one of the neighboring countries or other people
05:00that have already started raising rates to protect the currency
05:02and get the stability in overall.
05:04So we are currently at that situation
05:07where stability is paramount importance over growth.
05:11But we know that several banks, including the RBI,
05:13are stuck within a rock and a hot place.
05:15Do you address inflation?
05:16Do you address growth?
05:18I mean, what are the chances that we see a rate hike
05:19or rate hikes, for that matter, from the RBI?
05:22How soon might that happen?
05:23I mean, we saw how even Bank Indonesia, you know,
05:27came up with a 50 basis point hike
05:29because it needed to address the weakness in the currency.
05:32So we are in a regime shift mode.
05:34When we started this year, before war,
05:36it was a Goldilocks scenario.
05:38Like global growth was above potential.
05:4080% of the global central banks was on the easing term.
05:43But once this war broke out,
05:45we are into a stagflationary tale kind of a scenario
05:48where we still believe that the inflation is transitory.
05:51Inflation is not here to stay
05:53because if you remove oil and food out,
05:56the core part or super core part of the inflation
05:58is not uncomfortable zone for the central bank side.
06:02At that moment, when you are already on fiscal end,
06:05where increasing oil prices leading to demand destruction,
06:07if you start increasing borrowing costs,
06:10the growth will go to downhill over there.
06:13So taking that scenario into account,
06:15you can anticipate that for now the pain could be there
06:19that you don't hike overall.
06:21But in case like other countries, as you mentioned,
06:24where the currency started depreciating at a faster pace,
06:26there was no other resolution left
06:28rather than going straightforward for a hike.
06:30But in case of an India, as I highlighted earlier,
06:33there are still a number of tools available.
06:35Like you can go outside,
06:37do quasi-sovereign or sovereign dollar bond raisings overall
06:41beside the FCNR deposit.
06:43And you see that India doing that?
06:45It has happened in the past.
06:46So why not bring the same playbook over again?
06:49I'll not say the situation is as dire
06:51what we saw during 2013 tapering scare.
06:54But we have playbook and tool available
06:57to, you can say, control the situation.
07:00And we just have a story out of India right now.
07:04There is a Bank of India is considering
07:05all of its available options to stabilize the rupee,
07:09including an interest rate hike,
07:11more currency swaps and raising dollars
07:12for investors overseas,
07:14according to people familiar with the matter.
07:16Of course, this is a Bloomberg scoop.
07:18I mean, like you said, they're exploring all options.
07:21Which one will work?
07:22All of the above is needed.
07:24Rather than doing one, RBI will need to go big.
07:28By that you mean?
07:30Big means all kinds of measures.
07:32Because you remember, there are three asset classes in a play.
07:35Equities, rates, as well as your currency.
07:38If you will just, let's say an example of a measure of declining your current account
07:43deficit, who takes the hit?
07:44Growth takes the hit.
07:45And equity will be the only one which will show up.
07:47If you don't do on the current account site
07:49and just do go for the rates and this kind of a situation,
07:52who takes the hit?
07:53Your bond market takes the hit.
07:55So the point is, rather than using one single measure,
07:57you should use plethora of measures
07:58so that the hit is being taken across all the three asset classes.
08:03The thing is this, right?
08:05Part of the reason in the weakness of the currency
08:07is the exit of foreign funds.
08:09Foreign funds continue to make an exit.
08:12And until there is a reversal in that,
08:14the Indian rupee will continue to be weak.
08:16So no matter what measures are implemented by the government,
08:20by the RBI, the weakness in the currency will persist.
08:23Is that a fair assumption?
08:24That's a fair assumption.
08:25And we need growth.
08:27We need sustainable growth.
08:28And we have to see whether we have a push factors
08:30to bring the foreign money back or the pull factor.
08:33For the long time, low-cost labor has been the factor.
08:36Right now, the factors which are bringing money
08:38into the emerging market, like Latin America,
08:41is commodities and money which is coming to North Asia.
08:43That is AI and tech.
08:45So factors keep on changing.
08:47Right now, both the factors, either commodities
08:49or you can say the tech hardware or AI space,
08:51are missing in India.
08:52And foreign investors are missing.
08:54And Rajiv, it's not just weakness in the Indian rupee.
08:57A lot of the other emerging market currencies
08:59are getting smacked right now.
09:02The Indonesian rupiah, the Thai baht, the Philippine peso.
09:05Is that worrying for you?
09:07Or is it just a matter of waiting it out?
09:12I'll say there are periods which comes,
09:14and this is not something new.
09:16We had a stagflationary tilt after COVID.
09:18Then we had after the SVB issue,
09:21and post that we had after Russia-Ukraine war.
09:24And then for a couple of months during the Liberation Day,
09:28that is last year in April,
09:30we are going through the same stagflationary tilt over there.
09:32And that's where the bond market come,
09:34or you can say bond vigilante come,
09:36and try to tell equity market that there is a law of gravity.
09:40You cannot just keep on moving higher.
09:41So the checks and balances are coming.
09:43But to say that it is something getting worse,
09:47situation is getting above, like our hand,
09:50my answer is no.
09:51Because when I look at the deficits level,
09:53when I look at the debt-to-GDP kind of a level,
09:55we are in a much more better shape.
09:57What we were back in 2013,
09:59what we were back in GFC crisis era over there, sir.
10:01Yes, we are facing a hurdle at this juncture,
10:04precarious time over there.
10:06And that is a side effect of a stagflationary economy,
10:09where people tend to go into the spaces
10:12which are non-economic sensitive,
10:14which is again today's AI structural theme,
10:16and all kind of an economic sensitive zone,
10:18which is South Asia,
10:19or you can say some part of Europe and Africa.
10:22They try to become the funding source
10:23or try to take the hit.
10:25But we have to trust our policy makers.
10:27And time being, they have always showed.
10:30Because whenever there is kind of a trouble
10:32or a crisis situation,
10:33the policy making is best in emerging markets.
10:35But this is the new normal, isn't it?
10:37You can say goodbye to rate cuts.
10:41You can say hello to rate hikes.
10:45At least I will say,
10:46rather than straight going to the rate hike zone,
10:48there's a middle path call that I'm turning neutral.
10:52Like rather than guiding the market,
10:54that there is only cut, cut, cut.
10:56There is no neutral also.
10:58That's what the change in regime can happen.
11:00Rather than moving two step above,
11:02straight to hawkish,
11:03we can say that the neutral is the new stance,
11:05which India is trying to convey,
11:07RBI governor.
11:08And to think about a hike,
11:10we need something more.
11:12And if war comes to an end,
11:14oil price decline,
11:15inflation forwards are coming lower,
11:17it will resolve most of your trouble.
11:19And that's what we saw last night
11:21when the news broke out,
11:22and US 10 year,
11:24and then how equities and the bond all reacted.
11:27The same thing will happen in Asia also.
11:29So your key problem is just one.
11:31The state of Vermont,
11:32that strip needs to get open.
11:34And when it comes to emerging markets,
11:36one stand-up performer is actually Korea.
11:38Despite the recent sell-off,
11:40it's still up, what, 70% year to date.
11:42I mean, are you still as a beat?
11:43Is it time to be cautious?
11:45That is our number one overweight market.
11:47The highest conviction call within EM.
11:49We are overweight on Korea, Taiwan, and China,
11:53and beyond the South Africa and Brazil.
11:55But Korea stand number one for us.
11:57And there are multiple drivers
11:59taking Korean equities higher.
12:01Definitely, the global backdrop is positive for them.
12:04Second, the AI CapEx and memory chips demand
12:06is supporting them.
12:07Third, you have the long order book build-up
12:10for the industrial sector
12:11because everyone is looking for
12:12manufacturing and defense resilience overall.
12:15And lastly, Korea kept on suffering
12:17from the governance-related discount
12:19of not having a great governance over there,
12:21which is now getting over per se.
12:24So taking these factors into account,
12:25Korea equities is looking prime
12:27to hit our bull case of 10,000.
12:29How soon?
12:31That's our year-end target.
12:32So we have revised a couple of times already this year.
12:35We don't know next time when we need to revise
12:37as we get soon to the 10,000 bull case mark.
12:41What's the biggest risk to that projection, you think?
12:43The biggest risk to that projection will be,
12:46of course, the AI monetization.
12:49Right now, for the last couple of months,
12:51the concerns have come down over there as such.
12:53But that concerns can arrive again
12:55in case if the number of ARR generations
12:58are not moving above 150 billion mark,
13:01which is the current run rate.
13:02If the curve flatten out also,
13:04it's not a good situation
13:05because with the way the capex is happening,
13:08people want this number to keep on inching higher.
13:10So that's number one, live risk.
13:12And second, with the way which the cost is moving higher,
13:16both on the power and the hardware side,
13:18there could be a time coming
13:19where hyperscalers will say,
13:21how I can keep on funding the margins
13:23for the tech hardware companies
13:24and the power companies outside.
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