Would you agree that unfortunately Indian markets for 2023 are not off to a great start.
Well I think Indian markets had a great relative 2022 and in 2023 I think the economy is clearly slowing down somewhat from what was a very good recovery from some of the COVID comparisons earlier in the year.
I think that China reopening is going to be in my opinion the big story of 2023 where India is not the centre of the universe and in that circumstance I think India will do fine.
We will see a big rebound in commodities as China gets past its current COVID wave. Therefore yes Indian market is going to be a little choppy in the short term but it is still what we like in the medium term. This year we just want to be a little patient.
Why gold prices are at a multi-month high? Is the uptick in gold an indication of what lies ahead for rest of the year?
It is something that I must admit that my crystal ball is not very clear on. I think one of the views that we have is that central bankers took a very ill-advised action where they decided to freeze Russian dollar reserves which were their own money. It was a clear signal to China and other central banks that you are not safe holding US treasuries because the US can exercise this kind of pressure when they need to and therefore I think gold has a structure of benefit.
And if the expectation is that Fed may be winding up its rate hikes then you know gold becomes again attractive.
I am wondering how is it that you are reading into the jobs data. Solid data but enough for the markets to try and reprise Fed action?
I think it is a little early but we have had many false starts before hoping that the Fed is done and every time some slightly favourable data comes the market rallies. Then when the next data points comes and the Fed governors comes and talk and then it sells off.
I think the Fed is very clear that they are going to stay at it and if my thesis is correct that the China reopening is going to be an inflationary factor in 2023 then I think Fed is going to have to stay vigil. The hope that in 2023 at some point the Fed is going to start easing may die a slow death and therefore we are going to have this volatility.
But you know if I am wrong then we may go into goldilocks where the economy slows down, there is no recession, and Fed can ease off at some point.
I am not a believer and therefore these rallies in our opinion are more an opportunity for profit taking than they are for jumping on the band wagon unless we get data that proves that decisively inflation is coming down into the 2s, not just coming down from eight to some lower level.
What do you make of how global investors are eyeing India at the moment because we are just speaking how in the first week itself we have seen outflows to the tune of around Rs 8000 crore and this is on back of already weak numbers coming in from December as well? Is this the China versus India trade playing out that flows are moving away from India what is your sense?
Yes, I think it is temporary but it is very much that. India was a big beneficiary of money moving out of China in 2022 and India is going to on a relative basis suffer as money moves into China. So I think the China reopening is the big trade certainly after the first half of 2023 and there is no getting away from it. I mean we can do whatever we want but it is China’s own self inflicted harm in 2022 and China’s own decision to rapidly remove zero COVID that is going to drive that so there is not much India can do on that front.
I think the main thing is that we need to focus on India and what companies are doing to improve the bottom line and how are they positioned for a multiyear growth story. But in the short term yes fund flows are going to be somewhat unfavourable to India relative to China.
