So, you think for the bulls, the smile is back and is the smile here to stay for an extended period of time?Punita Kumar Sinha: The smile may stay for other reasons, but maybe not for markets. So, yes, we are having a bit of a rally, but I do not think we are out of the woods yet in terms of all the uncertainty in the global economy, uncertainty with respect to what is happening with tariffs and uncertainty with respect to the geopolitical relationships between the various countries.
So, we are not out of the woods. Markets were oversold. We have had a rally. But I would not be surprised if we could have another leg down at some point in the markets.Sheryll made a great point that, the tariffs have been imposed on Mexico and Canada and they are large trading partners of US. But Canadian stock market and Mexican stock markets are in the green for the year, which means that whatever may happen to the tariff, the bottom line here is or the grain of the truth here is that markets are getting immune to Trump tantrums if I may use the word.Punita Kumar Sinha: Well, emerging markets and European markets, international markets have actually outperformed the US markets this year for the most part and that is because they have been underperforming for a number of years and so this year the markets like US and India which were the big performers in 2023, 2024 are the ones that have taken a bigger hit and the markets that were the cheap, undervalued markets relatively have the ones that have outperformed.
So, part of it is the valuation, but the earnings of the companies will definitely get impacted and maybe the earnings results have not yet come out and the earnings will probably take a bit of time to start showing the tariff fallout. Definitely if there are tariffs, it is possible that the companies might see a slowdown in their sales, especially the ones that are exporting to the US, so that will show up in earnings maybe six months, one year down the road and earnings estimates will start reflecting those downgrades in the next couple of months. So, the markets may be going up right now, but the reality has not really sunken into the earnings.So, what could be the talking point for the rest of the year? For example, last six months, it was all about Donald Trump, tariffs, US debt, dollar index. For next six months or for the rest of the calendar year, what could be the talking points which will just occupy everyone’s mind?Punita Kumar Sinha: More of the same that you mentioned. It will still be how the global economy is going to respond to President Trump’s announcements, initiatives, and how various countries are going to adjust.
So, there will be a shift of trade that will happen and that is going to be a talking point as to where and which countries are going to set up alliances with which countries in terms of trading partners because US definitely is going to be a tougher place for most companies to export to, in certain sectors in particular, so they have to find alternative channels. So, that is going to be one big area of discussion that we are going to see.
We are going to also see a lot of narrative on what is going to happen to the economic growth and inflation and then interest rates. There is definitely a fear that there is going to be a slowdown and then interest rates will get cut faster than what people are expecting, so that also will impact currencies.
Last two years dollar has been the stronger currency but it may or may not be the stronger currency this year as we have already seen some reversal in some countries and some currencies are beginning to reverse the declines that we have seen in the last few years.
So, there will be all of that narrative that will happen this year. This is a year of adjustment because President Trump is setting a new regime for America and that means it is setting the global economy in a different zone, so that reset is what is going to be the narrative this year.
Everyone is of the view that 2025 may not be the year for Indian stock markets, valuations, flows, tariffs. Do you conquer with this view that India is a good to have market but not a must have market for this year?Punita Kumar Sinha: Well, for the Indian investors, it is a must have market because there is no alternative. I mean, we cannot invest anywhere overseas, the Indian domestic investors, so that flow of money and that supply that continuously comes through SIPs, yes, there has been a slowdown and there may be reallocation to cash and bonds and gold and real estate and other assets.
But equities will still be a primary asset class for the Indian investors. So, there is support coming from there. But yes, for the foreign investors, unless the Indian valuations get a little bit more attractive, there are plenty of opportunities whether it is in Europe, whether it is in Hong Kong, China, whether it is in other emerging markets, so those are definitely getting a relook.
India remains, of course, a very strong, stable economy and that does not change. So, there will be always flows going to India, maybe not as much as they have been in the past.
If the valuations correct some more, there will be money again coming to India because we have a strong economic growth story that is independent only of the exports and the tariffs because we have a strong consumption base.
So that part of the economy remains relatively insulated from what is happening in the rest of the world and I think that will attract investors back at some point in the future. But of course, the valuations have to be attractive enough for that money to come to India.
You did mention the fact that, yes, the Indian investors have to look at Indian markets, but which pockets of the Indian market should one look at given the sense that we have seen a sizable correction, the valuations for financials have become reasonable, that is one go-to pocket what everyone is talking about. But apart from that, which other sectors do you think looks good and are you also in the buy banks camp?Punita Kumar Sinha: Yes, I have been in the buy financials camp for a while. It has not played out last year, but I hope this will be the year that there will be a shift back to financials because the valuations are attractive. Liquidity which has been quite tight, will hopefully ease this year, and it is a sector that is a play on the Indian economy.
And as long as the Indian economy grows, this is a relatively attractively valued way to play the Indian economy from a macro perspective. Of course, the credit you have to be sensitive to the credit risk in certain pockets of this sector, so one has to be obviously careful, but definitely this would be a place that I hope will perform this year.
And everything else that is related to the domestic consumption story will continue to attract interest, whether that means travel and tourism, whether that means healthcare, so there are a lot of safe defensive sectors regardless of what happens globally and those are the sectors one should focus on.
The last few years we have obviously had a big shift towards capex sectors and those that have benefited from government capex and that obviously has seen somewhat of a slowdown because the government capex is not growing at the same rate and the private sector capex has not kept pace, but at some point domestic manufacturing will also become a focus back because every country needs to focus on its own manufacturing because we are entering in a world of more protectionism and so the Make in India theme will again become important and so you should stay tuned into what happens in that space because that could again attract interest.
For the year ahead, does it also make sense to make that market cap classification? I mean, are you safer in larger caps as opposed to mid and smalls?Punita Kumar Sinha: Larger caps are obviously safer, but they also do not give the same kind of return. So, the larger caps, I mean, at most you would get nominal GDP growth plus-minus some percentage points.
So, if in a year like this where there is a lot of uncertainty, it makes sense to have your portfolio tilted more towards largecap, but then you are not obviously betting on the fact that this is not a year where you are going to have outsized returns and therefore you should be happy if you can make positive absolute returns of between 10% and 15% and that is kind of the space that largecaps would give.
But longer term, of course, you have to look for opportunities in the mid and smallcap stocks and those are the ones that are more volatile, those are the ones that will correct the most, those are the ones that will probably rise the most and so there is more risk and more reward and so you have to make that trade off and longer-term you have to keep looking for right entry points in small and midcaps but largecaps are definitely a safer place to be, especially in a year like this, which is a year of adjustment and it is important to be focused on safety, quality, and predictability.
So, if you have to, let us say, put your 10% asset in one market and this is not India, which would be that market? I mean, where would you be overweight 15-20% of your portfolio in a single market?Punita Kumar Sinha: The only market that is significantly large enough and liquid enough where you would be seriously always remain overweight for the very long term would still be the US. But in the very short term, I would still bet more on Hong Kong, China.
