Cyclically Bullish On Markets In Near-Term, Says EM Capital's Jeetu Panjabi
Cyclical factors would downplay structural concerns and lead to markets rising in the near future, he said.
EM Capital Advisors' chief executive officer Jeetu Panjabi is cyclically bullish on investments in India, though nervous about earnings outlook and the global landscape.
While concerns linger over the medium term, cyclical factors would downplay structural concerns and lead to markets rising in the near future, he told BQ Prime's Niraj Shah.
Panjabi considers himself "cyclically bullish and structurally bearish".
When there is a battle between 'the structural factors' and 'the cyclical factors', the cyclical factor always wins in the near term.Jeetu Panjabi, CEO, EM Capital Advisors
While most analysts have described inflation as 'sticky', Panjabi said it is likely to peak in the next few months and there are a few markets where this is already evident.
According to him, the SVB and First Republic bank incidents show that the issues are not a banker's problem but a politician's, and fiscal monetisation is the path to solving these deterrents.
And while this can lead to volatility and second-derivative implications, it is not a late-cycle problem, but one where high quality securities have been priced down. It can be resolved by "one-shot doses of policy support", he said.
"The household P&L is strained with rising rates and that is ultimately going to translate into weaker consumer spending and timid demand," he said.
Short-Term Constructive View On The Market
Panjabi is cyclically constructive on markets for the next six to nine months for the following reasons:
Opening up of "Chinese gates", which he estimates is getting the country ready for an upcycle like the rest of the world did two years ago.
Due to fears of recession, inventories had reduced but now that manufacturing seems to be turning around, there is a high possibility of accelerated production.
The monetary cycle was at an extended down-trough for the past 15–16 months, but output liquidity bottomed last month. This creates space for monetary or liquidity drivers to come into play, which will fuel the industrial cycle. "Global manufacturing purchasing managers index has ticked up twice after eight months of consecutive declines," he said.
Lucrative Areas In The Short-Term
After eight to nine years of balance sheet consolidation seen in financials, credit demand is gradually growing in mid-teens, which creates an opportunity to make money in the space, he said.
Apart from major banks, sectors such as industrials, defence and railways—where the focus of the government is conspicuous—are also good bets, according to him.
There are selective bottom-up stocks and structural tailwinds in the domestic equity market, Panjabi said.
From a global standpoint, exchange-traded funds in "beaten and battered sectors"—especially industrials in Europe and the U.S.—offer profitable opportunities, he said.
Reason Behind Long-Term Worries
"The most significant and concurrently the least analysed imbalance in the world today is the external balance sheet of the United States, also technically called the International Investment Position," Panjabi said.
The IIP is at a $16-trillion total deficit, which roughly inhabits a debt deficit of $10 trillion and equity deficit of $6 trillion, according to his research.
Debt deficit was just $3 trillion seven years ago, which means it has tripled in the given time, he said.
The creditors to this balance sheet are China, Japan, the Middle East and wealth managers globally.
Therefore, his analysis is that high rates are supporting the U.S. dollars at a point when countries like China, Saudi Arabia and India are diversifying away from using the U.S. dollar as a trade currency.
When rates in the U.S. peak in a couple of quarters, the dollar could weaken, he said. Therefore, he estimates that the dollar could be in trouble over the next five–seven years, with collateral implications on the country.
How Is India Positioned?
Growth is an amalgamation of human capital, financial capital and productivity, Panjabi said.
Human capital: India accounts for more than 90% of the accretion to the workforce globally through 2030 and is the hub of productive human capital.
Financial capital: With 30% savings rate, financial capital is also available in plenty. Moreover, the clean-up of bank balance sheets should provide for a smooth transmission of capital through the system.
Productivity: With technology adoption and new-age connectivity practices, we should see productivity growth, he said.
Overall, with the corporate sector transmitting 15% return on equity through macro tailwinds, the financial markets should be pricing this well for stable equity returns, Panjabi said.
India looks well-poised over the next decade amid a global scenario that might be undergoing a difficult transition and dis-equilibrium, he said.