Sharmila's India - Scuppered
We have a difference of opinion internally on India. We debated how best to handle our divergent views and eventually chose to let you decide. Today we publish the first of our two India reports, Sharmila's India: Scuppered. In the interests of reader sanity we have tried to keep these reasonably short. Let the debate begin.In Sharmila’s India: Scuppered we argue that the next two years will be difficult ones for the economy and that a sustainable business cycle upturn will struggle to take root. The RBI’s new framework for resolution of stressed assets has tipped the banking sector into crisis. Bad loans are a set to increase further, across the board and will crimp lending, particularly if as we the next move in policy rates is up. The profit cycle is bottoming and investment picking up in a few sectors. But the cycle is at risk from rising input costs and weak demand – the post-GST lift to GDP is fading, which means a broad based recovery in private investment spending is likely to be delayed.
The upcoming 2019 General Elections are adding to uncertainty. The presumption that the BJP and Mr Modi will be returned to power is no longer a given. In the meantime the budget deficit is set to widen and so is the current account which means the rupee will remain under pressure.
We are bullish about India long term but right now our advice to clients is – stay clear of Indian stocks until after the elections. The best case scenario in the interim is increased market volatility.
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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