Arvind Sanger, Founder & Managing Partner, Geosphere Capital Management, says the Indian economy is going through a mid-cycle slowdown. India’s fate is in its own hands to the extent that the China trade at least partly the repositioning has played out to a significant extent. The question is when do we start to see signs of re-acceleration in the economy because without that re-acceleration, the FIIs are not going to be jumping back in with both feet.
How long do you think the Trump rally is going to last and how much more headroom does it have, although it does not seem to be rubbing off on India?
Arvind Sanger: I think the Trump rally was a real party that lasted all week. Now we are starting to get some indications of what his initial cabinet or some of his key members of his administration may look like. And maybe we will get a little bit more good news, but now we have to wait with bated breath on how strong is it going to be on the tariff front and how good will be the tax policy? Clearly, we are going to see deregulation. There are competing forces which suggest that the deregulation on the crypto front is great for Bitcoin. But when we talk about the rest of the economy, we have to worry a little bit about tariffs. We have to worry a little bit about deficits., I do not think the markets can keep going straight up without getting a clarity of what he is going to emphasise on. Usually markets have a year-end rally. It has come a little early. The markets will be fine, but they will be looking for signs along the way and those signs could cause it to rally more or maybe even take some profits. It has been a great run in a very short period, and so I am not counting on this rally to have a lot more legs without more juice being given by President Trump or others around him in terms of what is coming.What are the implications of the latest data point, the lower than expected inflation rate in China?
Arvind Sanger: China’s problem is not inflation or lack thereof. China’s problem is lack of growth. And the expectation was that they were holding off on an announcement till after the US election. And if President Trump won, there would be a more significant financial support for the economy. We did not get as big a number as people had hoped after the Trump election. It is one of those situations where China is also trying to use its bullets somewhat judiciously.
So, they have 1.4 trillion or something like that they announced yesterday. But what they are waiting to see, in my opinion and in many observers’ opinion, is that they are waiting to see exactly how far does President Trump go because China is clearly the number one target. If he has already announced that he is reappointing Robert Lighthizer as his trade representative, then that means that China is going to be clearly in the crosshairs of the US administration.
China’s economy is soft. They have done something to help the economy, but there are going to be more headwinds coming on the export front for China, which has been a big help this year. The export has been one of the few pockets of strength. So, the China situation will remain in doldrums till we get clarity on how far Trump is going to go and how far China is going to go in terms of responding to President Trump.
What does all of this mean for India? You talked about the Santa Claus rally coming to the US in a bit of a hurry, but the Indian markets have seen a reverse trade in the last one, one-and-a-half month. Given that the US bond markets are getting a bit more attractive, and US equities have been doing well, is there a possibility that the FII outflow will continue for the Indian markets or do you expect a reversal now?
Arvind Sanger: The big outflow has happened. So, I am not expecting anything big further. But the reality is that the Indian market has its own problems. The Indian economy is clearly showing signs of a mid-cycle slowdown. If you take everything from FMCG to MFIs to some of the banks like IndusInd Bank and you are talking about Tata Motors, the auto sector, the CV sector, across the spectrum, we are seeing signs that the economy is slowing down.
I do not think of this as a structural slowdown. I think of this as a mid-cycle slowdown. But nevertheless, it is a slowdown in a market that was priced for perfection. Some of the profit taking is partly to go to other markets like China, which were looking cheap, but partly also to maybe take a little bit chips off the table after the huge run that India has had over the last couple of years and in my opinion, India’s fate is in its own hands to the extent that the China trade at least partly the repositioning has played out to a significant extent. The question is when do we start to see signs of re-acceleration in the economy because without that re-acceleration, the FIIs are not going to be jumping back in with both feet.
