US China trade talks: Markets in wait-and-watch mode amid global crosswinds: Punita Kumar Sinha

“People are taking a relook at markets given the RBI cut. So, for the moment things seem to be fairly stable and macro conditions are benign. But one never knows given the global situation what could come next,” says Punita Kumar Sinha, Pacific Paradigm Advisors.

So much is happening globally. You have US versus China trade talks that are going on. Internally within the US we have seen some softening in job reports. You have Musk versus Trump that is going on. Where do we really begin talking about all of these and give us a sense of amid all of this that is happening, where does India stand right now?
Punita Kumar Sinha: Well, first of all, India stands in a good place because we have the least amount of risk compared to some of the other countries amongst the large economies, especially being on President Trump’s radar for tariffs and some other issues, immigration, etc.

So, I mean, the data is mixed. There are positives and then there are negatives. So, the positives, we are beginning to see for India is that obviously rate cuts and plenty of liquidity has been injected by the RBI, the monsoons are good which will help the rural economy, the trade talks are sort of not looking that harsh for India at the moment or at least it is not on the radar as much as some other countries, and the geopolitical situation seems to have calmed down, so that is on the positive front.

On the negative side, economic data is still mixed. The economy still needs to show sign of further strengthening. The RBI rate cuts now mean that potentially since the stance is now neutral, that there may not be any further cuts or further liquidity injections for the remainder of the year and then, another negative is that geopolitics could become an issue again and the trade discussions could again come into the forefront for India as well. And the other negative is that valuations are now, after the markets have rallied the valuations are not that great once again.

So, it is kind of a balance between the positives and negatives. And given that, the markets could be choppy, rangebound, but we could have some good months and maybe not so good months depending on data and news flow. So, I think the momentum is there right now. People are taking a relook at markets given the RBI cut. So, for the moment things seem to be fairly stable and macro conditions are benign. But one never knows given the global situation what could come next.

So, let us address that big overhang, the taco trade which is currently playing out and all eyes are on London, what is going to happen between US and China? I mean, even though US says that they are willing to actually remove restriction on some of their tech exports in exchange for China easing their limits on rare earth minerals, but how do you think that is going to really pan out because it seems like both parties are willing to negotiate, but it is literally like who is going to bell the cat first.
Punita Kumar Sinha: Well, it is in no one’s interest to have an adverse outcome. So, I am hopeful that there will be some negotiation that will be positive for both, otherwise the outcome could be negative and the markets are not pricing in a big negative outcome. The markets are pricing in a neutral to positive outcome, which is why the markets are being strong across the board, whether it is US, whether it is Chinese markets, Asian markets, emerging markets. So, I think that is the risk as well that the markets are not pricing in a bad scenario. Just wanted to have your take on the Indian markets valuation per se because I remember almost a month back when we interacted with you, you were of the view that the Indian market valuations are still not very cheap, but given all the fundamental triggers you just highlighted, now do they look reasonable and what is your overall take?
Punita Kumar Sinha: No, I mean I think they are still on the high side because the markets have rallied but, of course, India has underperformed some of the other emerging markets, particularly Latin America and some of the other Asian countries and also India has underperformed Europe. So, relative valuations compared to some of these other markets has improved. But if you look at versus its own history, Indian market valuations are not cheap and we are still trading over 20 times multiples and while growth would start picking up particularly on the rural side with the rate cuts and a better monsoon, so there could be some better numbers coming on the denominator, but I still do not think that the valuations are that attractive relative to its own history, they are not cheap, I mean they are neutral to high.