FIIs' Early Exit From India Seems Like A Mistake In Retrospect, Jefferies' Sean Darby Says
India is going through a cycle where it might be a nice environment to be raising rates, said Jefferies' Sean Darby.
Foreign institutional investors selling Indian equities in the first half of the year has turned out to be a mistake in hindsight, given the resilience seen in the economy and markets, according to Jefferies' Sean Darby.
India is going through a cycle where it might be a nice environment to be raising rates, the chief global equity strategist at Jefferies, told BQ Prime's Niraj Shah.
According to him, with remittances booming and geopolitical dynamics being favourable for India, the cycle is clear even if valuations are expensive. "Hence, we still have a positive outlook towards Indian equities," he said.
Inflation And Fed Impact
According to Darby, inflation is on a downward slope. But markets are fearful of overtightening by the U.S. Fed, he said.
It is hard to know if the pace of tightening will or won’t be more harmful for the U.S. economy later, Darby said.
He mentions an analysis by Jefferies that shows that ISM manufacturing is heavily influenced 18 months from the point of rates being adjusted. The lag effect means that while the Fed can tighten policy, the impact will be known after a gap, which worries the markets.
Equities are in a “no man's land”, as we are not finished with the tightening cycle, nor with the downward drift in global earnings, Darby said. It has led him to believe that equities are in the middle of a range cycle.
No 'Lehman Moment' For Europe
Darby does not consider that higher gas prices are Europe's 'Lehman moment'. The higher prices will not break the Eurozone systems and we won’t see a sovereign crisis in Europe, he said.
Constructive On U.S. Equities
Darby maintains that Jefferies is constructive on U.S. equities as the current recessionary headwinds point to a growth recession and not a credit one.
However, he said that he will change his view if there is a policy overtightening.
But until then, he is sanguine on the prospects of the U.S. economy and confident that the U.S. will not have stagflation.
Watch the full conversation here: