“One can keep on raising rates, but it is going to take time for that to feed through to companies as the tightness in the job market is starting to slow. This inflation could probably still be a lot quicker because of the warehousing impact of the higher interest rates and that will feed through to commodity prices and then inflation. But if we look at the jobs data as well, that is going to be a bit more tricky. That is what the market does not like,” says Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies LLP
Were you prepared for this kind of a fall because the Nifty and the Sensex have erased all the gains made in 2022. We are staring at a negative print when it comes to Nifty for the year. Is it how we are likely to end the year?
Compared to other emerging and developed markets, it is not a bad result. We are just edging into the negative and as we talked last time around as well, that kind of thinking about India decoupling and so forth is still high on peoples’ minds. One thing changed at the Fed meeting that whilst it was a continuation of what the Federal Reserve Chairman Jerome Powell said in Jackson Hole about fighting inflation, he emphasised about jobs and said that unemployment levels need to rise from where they are today because the jobs market is too tight.
Now if you look at that kind of data, it is going to be back-ended. So one can keep on raising rates, but it is going to take time for that to feed through to companies to the tightness in the job market starting to slow. This inflation could probably still be a lot quicker because of the warehousing impact of the higher interest rates and that will feed through to commodity prices and then inflation.
But if we look at the jobs data as well, that is going to be a bit more tricky. That is what the market does not like. The fact that rates are going to obviously be increased in the next two meetings and the uncertainty of when this data will turn enough for Jerome Powell to start easing rather than being hawkish, has played out very well through the currency markets. It is not just our own currency but other currencies are also very hard hit because of this.
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If you think about it, in the UK and Europe markets, we are seeing the biggest falls. We are importing inflation and for imported inflation, we have to increase rates. That is what the markets are starting to now recognise fully, which they had not done prior to the Federal Reserve meeting on Wednesday. How are you reading into the result from Accenture and what it spells for the sentiment on IT back home?
I do not think it is going to move the needle a lot because while the Fed and the rest of the central banks are going to try and take growth out of the equation, they cannot do so.because if the growth stops in technology in the US – the correlation between our IT stocks and those stocks is very high. I do not think it is a place one needs to be looking at.
IT for the moment is not the place to be looking at. It is a little bit of batten down the hatches at the moment and I have just been listening to the UK chancellor with a mini budget which is all about tax cuts – whether it is income tax or stamp duty but with no idea about how he is going to fund it. Their currency is going to take the hit, the bond yields are higher and this is the story.
There is some problem coming out from Europe because of the currency and that is going to affect global markets at some point. Looking at individual sectors and companies is probably not the right thing to be doing at the moment and one should look at all the problems where we are going to get hurt most. If there is a financial problem out there, it is coming from Europe.