Despite expectations of a rebound of global fund flows into India, Maneesh Dangi remains cautious, while adding that cheap valuations alone won't be enough to lift the battered Indian stocks.
The founder and chief executive officer of Macro Mosaic Investing said that the US dollar appears overextended, paving the way for potential weakening.
“You could argue that the incremental noises from the Oval Office aren't making a big difference. This could pave the way for some dollar weakening, and money that left India may find it difficult not to return. But this is just a 50% probability,” he said.
However, the bigger challenge, according to Dangi, is China's resurgence. China is positioning itself strongly in the tech space, challenging US hegemony and reshaping the emerging market investment theme away from India. “If investors see China as cheap and showing signs of recovery due to economic stimulus, capital flows may divert there,” he noted.
He also pointed out a structural shift in FII flows. “It's not clear if FIIs will return in a big way. The secular inflow of FII money into India effectively ended in the early 2010s. On a net basis, they come and go, but as a percentage of GDP, it doesn't hold up any more,” he explained.
Dangi expects net FII inflows to trickle in at about $5-10 billion annually over the next three-five years, rather than a large-scale return. “I'm not very bullish on an FII rebound,” he added.
Despite attractive stock valuations, they alone won't be enough to fuel a market recovery, according to him. “Valuations don't have the muscle to lift markets,” he said, adding that institutional money-seeking yield may still come to India once currency volatility stabilises. “India is creating long-tenor assets, and Western capital could flow there, but FII and FDI inflows have been structurally declining for a decade.”
US Tariffs: A Global Headwind
On the global front, Dangi sees potential risks from US tariffs for the equity markets. “It's a chess game with long-shot implications. Trump 2.0 appears more ideological and less concerned about equity markets, compared to his first term,” he observed.
While tariffs could be inflationary in the short run, Dangi pointed out that historically, such measures have eventually hurt growth. Typically, when big tariffs are imposed, rates actually tend to come down in the US over time. Tariffs could drive rates lower but will undoubtedly be bad for corporate profit pools, he said. “The US market is extraordinarily expensive and underestimating the economic and profit impact of tariffs.”
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