Global events have little impact on the Indian economy, although they may affect the stock markets temporarily.
That's according to Charles Gave, founder of the research firm Gavekal Research, who told NDTV Profit's Niraj Shah in an interview that "the Indian economy is now in the hands of the Indians."
Inflation, Rate Cuts In The U.S
Gave pointed out that low interest rates in the U.S. are leading to a shift from a deflationary to an inflationary boom. He isn't concerned about a recession in the world's largest economy. "I'm more worried about the possible inflation acceleration."
This could compel the U.S. Federal Reserve to raise rates, creating a more unpredictable environment for equities and bonds. "I anticipate the US central bank to act sooner rather than later."
"As interest rates are too low, corporate bond rates are too low. So, my view is that the market has anticipated a bigger and longer-lasting decline in inflation rates," he said.
"If interest rates go up, usually there is bad news for 'Long Duration Assets', 'Long Government Bonds', 'Long Bonds', and 'Gross Stocks'," Gave said.
"If oil stays at 80 (U.S. dollars per barrel), we can probably survive without much difficulty. But if it reaches 80–100, then we're in trouble," he said on the impact of oil rates on risky assets. "Avoid OECD government bonds," he advised.
India As An Emerging Market
Emerging markets in Asia, including India, and Latin America face constraints due to their current account deficit, hindering their growth. However, over the past 18–20 months, many of these countries have begun purchasing oil using their own currencies.
According to Gave, India is expected to experience a "significant deficit boost" for an extended period, with interest rates needing to drop to 4-5%.
India, he said, should prioritise nuclear energy and infrastructure development.
How's China Different From India?
Highlighting the difference between China and India's economic environments, Gave said China doesn't rely on foreign capital as it has excess savings, making it favourable for equity investments. India, he said, consistently faces a savings deficit.
"I would prefer investing in bonds in China and equities in India," he said.
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