Amid the global economic growth slowdown, Coronavirus scare further threatens to bring down the global demand, said Rajesh Chereuvu, Chief Investment Officer, Validus Wealth.
Amid the global economic growth slowdown, Coronavirus scare further threatens to bring down the global demand, said an investment advisor. Considering the ongoing negative impact of US-Iran tussle, the Coronavirus concern may further weaken the Indian equity indices, Rajesh Chereuvu, Chief Investment Officer, Validus Wealth, told Ashish Pandey of Financial Express Online. However, much of the weakness has already been priced in particularly in the run-up seen in mid-caps since the last few months of 2018, Rajesh Chereuvu also said. On rupee, he said that rising inflation may further weaken rupee going ahead.
Here are the edited excerpts of the interview:
Where do you think the Sensex and Nifty may move in the coming days? What kind of impact budget 2020 may have on the benchmark equity indices?
India VIX has risen sharply from 11.5 levels at the start of the year to now almost 17. Such a jump in volatility can be attributed to the U.S. – Iran face-off and more recently, the Coronavirus scare that threatens to weigh down on global demand. This has spooked Asian indices with China being the epicenter of the disease. In light of this volatility some weakness can be expected in Indian indices as well, since during the SARS scare as well, equities faced torrid trading sessions. From the point of view of Budget, expectations run high from the Finance Minister as she presents this under the second tenure of the BJP at a time of much consumption slowdown clamor. Much of this has been priced in particularly in the run-up seen in mid-caps since the last few months of 2018. So some moderation in indices could be witnessed, though any surprise positives on asset class tax rationalization or income taxes could re-spur animal spirits.
When do you see the economic growth rate improving? How long do you think the slowdown may continue?
Economic growth as seen in the earnings of certain companies remains weak. The volume growth of certain FMCG companies has not beaten estimates. Until and unless some stimulus to consumption is provided, only then would the economy revive since India still remains consumption-driven. For this, some form of credit growth has to pan out significantly. While PSU capitalizations have been vigorously done, the banks find themselves somewhat lacking in gumption to dish out loans. This could probably be the turning point for the economy to revive.
Should investors allocate more towards safe havens in such a volatile scenario?
True, the most pricy of the safe-havens viz. gold has once again started to warm up as the Coronavirus fears aggravate. One could deviate from the originally thought out strategic asset allocation and tactically increase allocations towards safe-haven assets be it the lower inflation USD (vs. high inflation INR), Gold or high-quality corporate bonds.
What’s your view on the rupee in the near term?
Coincidentally some weakening of the INR vs. the greenback transpired as the Davos 2020 summit got underway. A growing number of voices are calling for the U.S. to issue a “digital dollar” as China continues to work on a digital version of its currency. Such a transformational shift from current legal tender to a digital version could leave the world with just 5 or 6 currencies by 2040 says Brazil’s economy minister says. In the longer run, basics of barter are now getting challenged once again and remain to be seen which of the emerging or developed currencies bite the dust first. Global tensions spring up one after another, this time between U.S. and France as the latter seeks to impose a digital tax on mostly, the FAANGs and oil volatility will continue as Israel and Lebanon squabble over newly discovered oil reserves. The detection of Coronavirus in North America, Germany and now, even India, has also brought back public health crisis risks to global trade. Net-net, the spiking up of India’s CPI is likely to further the thesis of weakening INR as the inflation differential between India and the U.S. resumes its upward trajectory.