India is set to outgrow emerging markets even as the incoming US administration's protectionist policy drive a shift in global capital allocation, according to JPMorgan's Sanjay Mookim.
"Indian growth was different from EMs for a long time. If you look at the performance in MSCI EM, India has behaved like the S&P 500 up untill the US election," Mookim, head of India equity research at JPMorgan, told NDTV Profit in a televised interview.
"After the election, India got bucketed with EM again because of the shift in policies in the US. But can India outgrow EM? That's our base case argument," he added.
Donald Trump has laid out an economic plan for America that includes the use of punitive tariffs in external trade and deregulation of industry at home, policies seen as inflationary but also firing up the US economy.
With regards to China, he noted that the world's second-largest economy still dominates in EM in terms of GDP contribution and stimulus measures can fuel temporary growth.
"If the Chinese government stimulates the economy next year, then the EM growth can be reviewed. But if it does not happen, the US will grow faster than most economies," Mookim said.
He sees investor interest in China to be temporary rather than a permanent change in growth expectation.
Interest Rate Outlook
Sanjay Mookim said Trump tariffs will impact monetary policy as countries like China or Mexico might try to offset such trade barrier by letting their currencies depreciate against the dollar.
"Indian policymakers will not allow the rupee to strengthen against the yuan. It will force more Chinese imports into India. So you may not have any tariffs imposed on you, but there is an incentive to weaken your currency in line with others," he said.
Mookim observed that tariffs will lead to inflation in the US, but cause deflation and slow growth in countries that will find if difficult to sell in the world's largest economy. Emerging markets will hence battle currency depreciation and slow growth.
"The policy choice that faces many central bankers over the course of 12-18 months: Do you cut rates to drive growth or do you keep rates high to save your currency? My sense is most will choose to cut rates to drive growth because saving the currency will probably be futile," he said.
Watch Sanjay Mookim's Full Interview:
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