“The Indian economy has done very well since the pandemic…we’ve seen that reflecting in the financial markets, not just the stock market, but also on the property market,” he said.
With inflation currently under control and bank profitability strong, he believes there is no immediate need for interest rate cuts, allowing the RBI to remain focused on stability without compromising growth prospects.
He expects the US economy’s resilience, even amid high interest rates, to continue. With a GDP growth rate of 2.8% for the third quarter, robust retail sales, and steady earnings, the “underlying strength is undiminished.”
He believes the markets may have overestimated the extent of rate cuts by the US Federal Reserve in the long term. With interest rates still high and the US economy strong, there may be adjustments to these forecasts as 2025 approaches.
China’s stock market remains undervalued—trading “at distress levels”—there is considerable opportunity in sectors such as e-commerce, transportation, and pharmaceuticals.
Despite the country’s uncertain macroeconomic outlook, Baig sees potential for specific companies to deliver solid returns to shareholders, especially those with robust business models in high-growth industries.
Below are the excerpts of the interview.
Q: Five days to the big US election. It is going to dominate the news cycle, but will it dominate the market cycle as well?
Beg: There is enough on the economic and financial market side, independent of the election dynamic. Just look at the GDP, number out of the US for the third quarter, 2.8% look at the earnings on the margin, disappointment here and there, but overall, very strong. Look at retail sales, both including and excluding autos, very strong. So the big sort of takeaway from the US economic narrative is the underlying strength is undiminished, despite all the high rates, despite all the anxiety about how much the Fed can cut or not cut. The fact of the matter is, the economy is humming independent of who wins next week. Hopefully we get a result next week. I think that underlying momentum remains.
Q: On November 7, we’ll get a cut, or you think the bar perhaps is not so high now for the Fed not to do anything?
Baig: I think the Fed has tied itself. It has to cut both in November and there to be a Christmas present in December. The question is 2025. I think the pace with which the market started pricing in over 100 basis points, maybe even 200 basis points of rate cut in 2025 that will have to be revised in a very substantial manner. And I think the long end of the market is telling us that already is happening.
Q: Also, there’s enough going on in Asia. I was looking at the PMI print from China, first time we’re seeing expansion there, and that’s really affected us, because, I think, sentimentally, foreign investors started looking elsewhere as well. What’s happening in China and what’s your sense?
Baig: Clearly, there’s a big valuation gap. Chinese stock market is basically trading at distress levels. Even after the rally that we saw in the last couple of months, they’re very, very cheap. They’re cheap for a good reason. There’s lots of bad news and anxiety around China’s outlook, but there are companies that basically print money, very large market, very big e-commerce space, very big transportation sector, pharma sector. So companies that can finally begin to go beyond the overall gloomy construct of China, can start delivering very substantial return to shareholders. Even when I go to the US now, talking to money manager in the US who would not touch Chinese equities in the last two years, are getting very excited, very interested. So I think there’s a big pool of competition out there for the rather rich Indian stocks.
Q: You’re saying the underlying Chinese economy may take its own sweet time to pick up, but some of these e-commerce plays and some of these specific niche companies will keep getting the capital.
Baig: There’s definitely deep value in a variety of companies and sectors in China in terms of research, development, commercialisation, of patents, it’s pretty impressive what’s happening in China despite eight years of trade and tech war.
Q: What about the Indian economy? How do you see things shape up out here? Because, till a few months ago, we were the only game in town, and suddenly you have talk about China coming back into play as well. Pockets of Brazil are doing well. Could you tell us what is your estimates with regard to the Indian economy? What are the growth targets you’re looking at? Inflation seems to be under control, and what are you pricing in with regard to the RBI?
Baig: RBI has the room to be deliberative and data dependent. I don’t think there is anybody in the country that’s crying out for lower interest rates, and therefore, when we look at bank profitability, for example, things are fairly sound. As far as the financial sector and individual participants in the economy’s nexus is concerned.
I think the Indian economy has done very well since the pandemic. It’s sort of come back in a roaring way. We’ve seen that reflecting in the financial markets, not just the stock market, but also on the property market. Going forward, there is some noise around rural demand versus non rural demand, outlook for exports, but I think those are on the margin. I think underlying story for India, which is one of substantial growth, both in nominal and real terms, remains high. And again, US money managers have been excited for India for the last 10 years.
Watch accompanying video for entire conversation.
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