sandip sabharwal portfolio: Global markets moving past tariff fears, dollar weakness may boost EMs: Sandip Sabharwal

“We have seen the US dollar index actually fall 2% this year, not rise. We have seen bond yields cool off significantly. And today, US is 70% of the world market capitalisation, up from maybe around 30% a few years back,” says Sandip Sabharwal, asksandipsabharwal.com.

Are we now really reaching what could be called as the end of the pain because dollar has stabilised, yields are not rising, war is getting over, and US tech stocks have started correcting. So, whatever has bothered us, now one by one is getting addressed, excepting Donald Trump.
Sandip Sabharwal: Everyday announcements of Donald Trump cannot have the same impact on the markets. So, you cannot have a scenario where every day US president says something and the markets fall just because of that. Given the fact that most countries which are actually most impacted by the tariffs and who are so export dependent have actually seen their markets move up.So, it is just the explanation of what happened, which is not the valid reason. Now, the key points, the main concerns of people for emerging markets, including India beginning of the year were US dollar is continuously rallying so US assets are getting bought.

Secondly, US bond yields are moving up, so they become more attractive and that is the reason why emerging markets are seeing outflows. Now, we are at a stage where recent data indicates that the US economy seems to be suddenly slowing down significantly.

So, in that context, we have seen the US dollar index actually fall 2% this year, not rise. We have seen bond yields cool off significantly. And today, US is 70% of the world market capitalisation, up from maybe around 30% a few years back.So, the funds will shift. Now, whether the funds shift more to bonds or more to equities in other markets, including emerging markets, is something we need to see.

But I think that extreme fund flow picture where just US assets were being bought, including other developed equities, like European equities, despite there being not much growth there, I think that phenomenon might not sustain.

In the Indian context, I would think that most of the negatives, at least for largecaps and established midcaps, is in the price. Now it is just a liquidity thing that there are some people who are doing loss harvesting where people who have no conviction that markets will rise, etc, but markets have these phases and that should get over sooner than later.

Is this a good idea, revisit Mahindra & Mahindra or Tata Motors, because anything which is sold off because of fear of Tesla, that is slightly stretched?
Sandip Sabharwal: Yes, stretched, because like you rightly said, they will be getting some duty concession on first 8000 units if they commit to spend whatever 4500 crores in setting up a manufacturing facility.

There has to be a service network for people to be confident while buying a car. Some people might just buy a Tesla just to show that they have a Tesla. But ex of that, the value proposition as well as the established service network, everything needs to play out.

So, obviously, these fears are over-exaggerated. One segment which should see a recovery going into next year, as far as consumption basket goes, should be the auto side. So, I would agree that companies which have done so well and where their outlook is also so good, especially Mahindra & Mahindra, the sale is exaggerated and the sale started actually just one day after their new models got some 8000 crores of demand on a single day. So, it is irrational in that way.