What were the key highlights for you from the Fed commentary yesterday?
For the first time, I saw the Fed chair being very definitive on how supportive he is going to be on the market. He is not as worried about inflation as the market is. He said he is going to do whatever it takes. He is going to continue with the bond buying. What we saw was a definite stance and some support from the Fed chair. Before that. there was a feeling in the market that the Fed might buckle under the weight of the data which is pointing towards higher inflation and his hand might be forced. But he said whatever it takes. Even if inflation runs above 2%, that is fine. It is going to be very transitory and he is going to make sure it stays around 2% and he says it is a long way to go. Covid is the real enemy at this point that needs to be controlled. 8 million people are still unemployed. So he has his priorities lined up very clearly and the market got the message.
What is the take on emerging markets given that interest rates are benign pretty much across the globe? Within the emerging markets cluster, how are you reading flows into India because month to date as well in the month gone by, we have not quite seen flows pouring into Indian equity markets given the weakness of the currency too.
There is another element to India. With the Covid resurgence, there is a lot of money flowing out. From what I read and understand, that is also playing into it but overall emerging markets is where the money will go. That is a very good investment at this point because the valuations here are very high and the recovery in the rest of the world especially the emerging market is expected barring this resurgence which might slow down and delay the recovery. But overall, that is where the next action is going to be. Money is going to flow there after some time and that is the feeling at this point.
Sectorally what is the trend that you are seeing across the US equity markets? Do FAANGs continue to take the lead?
Yes. The themes that were playing out in the last few years, will continue to play out. The companies that are well positioned in the cloud, in digital advertising and in all these emerging growth areas where Apple, Facebook and the big tech are situated, are going to do well. The reopening trade is going on in commodities, energy and all that.
The ideal strategy at this point is the barbell strategy as some of the strategists have outlined where the big tech is very well positioned. I do not think they have peaked out. After the reopening, the beneficiary of stay-at-home stocks was big tech. These companies still have a long way to go, a lot of untapped markets to be tapped into. With the reopening trade going on, the consumer discretionary stocks are also going to do well. So there is bifurcated market but I think that companies that are well funded and which have good balance sheets are going to do well in this market as well.
