We need to see further weakness in the dollar and Covid issue coming under control before we see some sustained outperformance, says Jonathan Schiessl, Global Investment Strategist.

Do not know how to explain the way India markets have been moving. I do not know whether it is YOLO or FOMO. I do not know what is at play but we are clearly defying even the global trend.

Yes, as you rightly pointed out one stock seems to be doing the heavy lifting. I guess we have seen that sort of stimulus or the moves in the US as well. Very few stocks are keeping index levels high.

There does seem to be a fair amount of interest coming in from the foreign investors and domestic institutional investors who have been pumping in money into the equity markets despite the global scenario and the recession fears looming large. Do you think this liquidity will continue to remain flush or it is contingent on what we see on the medical front? How attractive is India from a foreign investor perspective?
Yes, I think from a global liquidity perspective, central banks and governments have pretty much made it very clear that we will do whatever is needed to try and get the global economy and individual economies back on a steady footing after this extraordinary slowdown and recession that we are going through at the moment. So there is pretty much no doubt that liquidity will stay quite easy for some time. Obviously to a certain extent, there is a risk that the governments could keep liquidity too easy and then there might be an inflation problem particularly in developed markets down the road but obviously that is not today’s worry. It is more a deflationary concern at the moment.

But if you look at the relative performance of India, obviously developed markets have carried on outperforming but then even in that context, if you scratch under the surface of the main line indices, you are seeing a huge dispersion of returns and there has been this debate about value stocks and growth stocks. So even within some of the indices, we have certainly got some sections which have been in quite a bad bear market for sometime and are beginning to show a little bit of life like some of the value places.

But certainly, in the emerging markets obviously we had seen the dollar coming off a little bit. Yes, it has recovered over the last week or so but emerging markets have not really recovered that much yet and I would expect that we need to see further dollar weakness and see a little bit more of the whole Covid issue coming under control in some emerging markets before you will see some sustained outperformance of emerging markets in general and obviously with India in particular.

Do you see more value in Reliance Industries from here onwards?

Yes, that has always been a tricky stock to look at. Historically, it has moved the business so much and the value that is being attributed obviously to telecom and the whole Jio area is obviously driving the stock higher. I guess the reality is, global markets are still being driven by growth stocks and obviously Reliance is the easiest way to play the whole internet theme. There is just not that much choice out there and it is quite plausible that growth stocks like Reliance have that. That type of exposure can shift higher in the coming period. Obviously markets globally anyway are going through this big debate: will value kind of re-emerge as a style but for the time being, the growth names are still pushing things higher.

Would you stick with the growth drivers like financials or would you be looking elsewhere? What would you be looking at?

Yes, it is a fascinating time for markets at the moment and it is plausible that these growth stocks can shift on to another trajectory and get incredibly expensive. We have seen that in the past. I think the sensible way to play it is just for a barbell type of approach. Do have some exposure to these types of high growth names. Obviously Indian financials have their own separate issues and globally, financials have not really been a leading sector and that is obviously year to date in India.

But I think the likes of commodities and certain real asset plays are very interesting at the moment. Obviously China is continuing to recover commodity demand and commodity prices have been holding up very well pushing up to new highs. So commodities and some of the more value plays are worth a look at this stage.

I know it is a specific pocket but what do you think about real estate? Are you counting on some kind of recovery going forward or would you avoid real estate altogether?
It has been a mess. One or two pockets were quite interesting but certainly from an Indian perspective, real estate has been a tough space to be in. One of the few bright spots was commercial real estate. Obviously what you are saying at the moment is quite interesting. If global supply chains are genuinely going to start shifting more out of China and diversifying themselves, then commercial real estate is quite an interesting space you will see more businesses relocating to India.

So I think that is an interesting pocket and will be for some time. Obviously the retail space is under stress at the moment but people will go back to malls ultimately. So there is some stress in that space. Then obviously on the residential side, real estate has traditionally been quite a good inflation hedged real asset type of play and you are seeing a move to certainly some of those areas globally where people are beginning to think they are going to shift into a more inflationary environment. So certain pockets in real estate do look interesting.







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