The Managing Director for Indian Equities at Manulife Asset says the growth support is already here, the bulk of the crisis has happened and in a 12-month kind of view, probably things could get better
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Yes, volatility has been too high and unanticipated events are happening one after another. It was the US-Iran tension at the beginning of the year, then the COVID thing, which is going on right now. I think the markets have reacted to that and prices have corrected a bit. On the recent bout of uncertainty, our view is that COVID is a bit serious event, and this will cause supply and demand shocks throughout the world. These shocks will be transitory. But we do think economic data could still be quite poor three to six months hence. That said, one has to say that companies with strong balance sheets will ride this. Overall, supports have come in and we have already seen globally central banks cutting rates. That provides some sort of support to revive growth. Our prognosis is that the support is already here, the bulk of the crisis has happened and in a 12-month kind of view, probably things could be better.
If I could talk about equities as an asset class, if one is looking at data points coming through for next three months, that data point can still be quite volatile because this destruction has just happened and those are not in the numbers. In fact, people are trying to put forward numbers that would capture the sort of disruption. Having said that, assuming this virus does not spread to any new geographies, assuming one would be looking out at nine to 12 months and any weakness caused by it in next three months due to of economic data points, it could be a good opportunity in a 9 to 12 months kind of perspective. Because this disruption will not, or may not last beyond three months. However, supports put in place like a favourable monetary policy or somewhat fiscal policy or benign global liquidity, they will last much longer. All of this is creating a pro-risk kind of environment, but we have to wait a few more months before that unfolds.
How do you see India performing vis-à-vis some of the other markets at this point?
Depends. Because India has also reported a few cases of coronavirus . In the very short term, it would depend on the infection rates and the noise we get out of this virus thing. But if you take a longer-term view point, ultimately it will all come back to earnings. We do expect Indian earnings to come back somewhere in H2 of FY21, led by certain sectors like banks and telecom. We do think it is quite visible. Next three months are quite uncertain, but 12-month view is quite good.
What was the difference, say, one month back and now? People were ignoring the risk that could come up from this virus, but now people are not ignoring that risk. Even authorities are giving out strong statements that they are prepared all across the globe. Do you think news flow from here on may only incrementally not turn bad?
There are two ways to look at it. First of all, this virus is now taken very seriously. If we look at, let us say, China or Singapore, whenever the authorities took it a bit seriously, they implemented quarantine measures, they implemented several other measures. It has economic impact, because economic activity suffers. People are fearful to go out. But at the same time, economic data can weaken for a month because of all this, but this contains a problem of virus, public health and all that. Therefore, the market in its own wisdom — rightly in our view — looks past economic data, which is going to weaken for next one to two months. I think because of those measures, economic data can weaken for one to two months, but after this things should improve. As far as markets are concerned, they may consolidate around those, but beyond that they will look through those data and look for an eventual improvement.
What about the flight to safety for the dollar? The way US 10-year yields are, do you think those assets will gain importance right now?
The Fed has already cut rates, and obviously the yields have moved much ahead of the rate cut. If you look at it, markets are expecting further rate cuts. So markets are expecting something like 50 bps rate cuts in next six months. Even if you were to add a 50-60 bps spread on that, you will get something like 1.1 per cent or 1.2 per cent of 10 years.
So, our view is that rates are going to remain lower for longer. I think Fed has been very clear in saying even at the beginning of this year that it is going to tolerate inflation a bit on the higher bound for some time because that is required for a symmetric outlook on inflation. I think rates are going to remain in a sedentary environment and the liquidity environment is going to remain quite supportive.
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Three-month outlook very uncertain, 12-month view quite good: Rana B Gupta have 1417 words, post on economictimes.indiatimes.com at March 5, 2020. This is cached page on Konitono.News. If you want remove this page, please contact us.