While we know that there would be some changes, where do you think markets are assuming perhaps or where the assumptions do you think are slightly misplaced both in terms of what he will do and what he will not do?
Punita Kumar Sinha: So, interestingly, there is a lot of optimism in the US about President Trump and what he might do for the US economy, inflation and policies and the general consensus view is like, okay, he is very practical, he is business friendly, and he is not going to do anything that will really hurt American business or the equity markets. And also, across the country there is concern on inflation, immigration. So, there is a lot of expectation from President Trump. Can he meet those expectations is what I think is going to be tricky because leading up to his inauguration, there is just, I think, too much optimism built within the US, but of course a lot of fear and trepidation across the world as to what that would mean for their economies and the tariffs.
On the geopolitics, also, there is a lot of expectation that President Trump could solve the war situation. So, the markets have not really priced in much of anything, quite honestly. They are waiting and watching. We are seeing quite a lot of volatility. There is some concerns. US bond yields have been going up, but there is also optimism. So, it is mixed right now in terms of expectations.
When you say markets have not priced in, what are you trying to perhaps indicate here because bond yields have already gone up, dollar index is at 110, so some would argue back and say that are not financial markets pricing in that in the short term Trump 2.0 means strong America and which in a sense will have an impact on emerging markets on the negative way?
Punita Kumar Sinha: First, I thought that rising bond yields was pricing in some of the uncertainty but that is more related to inflation and not to President Trump, because there is concern on the jobs data and the stronger economy in the US and inflation may not be tamed and therefore interest rates would not come down, so I think that is what is driving US bond yields higher. I do not think anyone is even able to price and I do not think financial markets are pricing in President Trump’s inauguration and what he might do because I do not think anyone really knows exactly what he might do.
So, for instance, this ceasefire was completely unexpected. There could be a lot of unexpected moves that President Trump comes up with and that is why I am saying it is not priced in because I do not think it can be priced in because to price in, you really need to know what is going on in his head and nobody knows what he might actually do. So, I think markets are going to move a lot with policy announcements and that means that there could be volatility in the markets and it could be up days and down days based on what announcements are made and what that would mean for various companies and geographies.
Suffice to say that it would be a fair assumption that the pressure on China would remain or do you think his narrative towards China could also take a U-turn perhaps and I ask only because more and more the world is now looking inwards for the entire supply chain and not depending as much on China.
Punita Kumar Sinha: So, even on China, while definitely there is some expectation and perhaps a little bit of that is priced in on the tariff increases, but there is also an equally strong lobby that is talking about the fact that the Chinese companies are…, actually many of them are incorporated, are doing business with the US, and in some ways US is benefiting as much if not more than China.
There are a lot of Chinese companies that are listed in the US as well. So, even on that, he may make some announcements, but then those could be potentially rolled in a different direction based on more and more data that he might get.
So, even on that, I do expect there could be definitely pressure on China, being its large trading partner for the US and also politically, optically, I think being tough on China is going to make him look good but I do not think that is also fully priced in.
What would it really mean for India? I mean, what is it that here we should look out for besides, of course, tracking the dollar which we already have and the repercussions it has brought about for the currency?
Punita Kumar Sinha: I think in this kind of an environment, it is best to focus on what India makes and India’s domestic consumption is something that you cannot take away, nobody can take away our population, our growth rates are still higher than other countries albeit they have slowed down and there is some slowdown in the economy and some stress that is being felt in the rural sector and the non-urban sector.
So, the Indian economy is definitely diverging between the haves and the have-nots. But India’s consumption story and domestic consumption, domestic manufacturing is what we should focus on because that is not going to be impacted by somebody outside determining our economic future, so I think that is the kind of stocks also and the companies that one should be looking at in this uncertain environment until President Trump reaches some kind of equilibrium and pretty much where he stands.
Right now, we do not know when he is going to attack which problem. There is immigration, there is inflation, there is tariffs. I mean and I do not think India is necessarily the first point that he is going to really tackle other than what it means for IT companies and what he might do, what immigration policies he might do to our exporters.
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