The numbers look dismal but there seems to be an understanding that the slowdown in growth which is expected to come because of monetary impact will also see inflation easing. The first six months will be bad but it might improve here on do you agree with that view?
I do agree because there is a silver lining that if the slowdown is getting priced in as we see now because there is more chatter about slowdown happening then that gets the central banks active which means they are not going to be raising the rates further higher from where it is.
I do believe that on Feb the 1st, Fed is going to increase rates by 0.25%. I feel it will be the last rate hike for this cycle because inflation is coming down fast. I expect the December CPI print to be around 6.35 again which is higher than where it should be clearly the target is 2% but the numbers are coming down fast and this is based on month on month number coming out at 0.1 or 0.2 thereabouts.
If we were to see a negative print then of course it will come down quicker than that so more and more people now do expect that recession may happen and that gets the Fed thinking whether that is something they want to happen.
I think it is about expectations as once this starts getting priced in, the Fed is going to not be raising rates much higher.
I think once the expectation gets readjusted you are going to see calmness in the market and a steady increase. My expectation is that we will have a positive year this year.
In the middle of all of this we know the broader narrative that Asia will be relatively better, India will be relatively a bright spot. But do you think that some of those headwinds globally will hit domestically as well and that is what we have been seeing in Indian markets as there has not been a supreme start to 2023?
If you see the year that India has had, Indian market has done very well on relative terms. It just tells you that you have a complete delinking as you may say between FII money and domestic money. Domestic investors are getting more into India and 2022 to me has been a year to show that to investors that there is a lot of domestic spending and domestic saving which is going into the Indian capital market and that is the sign of how the Indian capital market is maturing. It does not only rely on foreign flows so that is one thing to really think about which is very significant. Now the second is that is India completely immune absolutely not so whatever happens to US dollar will continue to have an impact on India because India is still a massive importer of oil.
Now thankfully energy prices that India is paying is not very high and also I am sure India has some deals done with various suppliers which is profitable so those two things are helping India.
When you are talking about India it is one clear thing that one has to have an investment horizon. So if you are talking in terms of six months-one year it is difficult to predict and Indian market will align with what is happening globally but if you take a three to five year approach then it is very easy to say which market you want to be in where the growth where the savings is going to be, where the fiscal picture is much clearer, where every sector development is happening. Also, the political stability that India has compared to other economies are hugely positive. So if you take a medium to long term approach then it’s absolutely a no brainer that you have to be in India. But be mindful that in short term you might get the whiplash of what is happening in global economy because India just cannot completely be immune from what is happening abroad.
Do you think that this pack is going to continue to be very vulnerable?
I think if you look at Tesla one thing to bear in mind is that on a free cash flow basis and free cash flow yield basis, Tesla is still better than GM and Ford combined.
Given how far the stocks have rallied and the picture that has been built around in terms of EV adoption, the number of cars that Tesla is going to sell and with growth companies there will be huge amount of rally and huge amount of setbacks.
If I am not wrong Amazon had some three or four over 70% corrections. I think if you are getting into a growth company in a “new economy” given what EV is then you have to be careful that you are going to get such rallies. So I would not be too bearish or too concerned about that.
I want to make one final point when we talk about markets and expectations if it was December 2021 and I had told all investors that there is going to be war on European land and the inflation will be 8.5% what would you do, you would go and buy gold probably and look what gold has done. Gold has been flat for the whole year. If I had said that they are going to blow up their Nord Stream pipeline then you would have thought oh! my God oil price is going to go through the roof, emerging market is going to sell off and crash and burn. Look what happened you have shown the chart Nifty is at 0.1% and S&P is down minus 19.4%. So we get caught too much in building up stories and expectation. The key thing to focus is when you are investing keep a medium to long term approach, look at political stability, GDP growth, law and everything that goes around it.
When you talk about property rights and based on that you make investments and that is the approach I would like to take and of course we have a lot of the short term updates that we have due to clients and markets and everything which was because we have to but I always recommended everyone never to lose sight of medium to long term in picking economies and businesses and not be worried about 10%, 15%, 20% move here and there which might happen not because of you but because of millions of the people in this market who have different view from you.
