When US sneezes… The World Catches a Cold!

It is an age-old correlation between the US stock markets and the world. Previously, the co-relation coefficients were at 0.6 to 0.7, but as India becomes more Bharat- centric, this number has gone down to 0.4 to 0.5.

Its election season in 20 countries around the world, and this is already creating the anticipated turbulence in the markets. Going by the PE, the US markets seem overvalued, while the Indian equities seem fairly valued. While globalization has opened the doors to other economies, it has also brought the problems of others to the Indian shores. The US economic, fiscal, and monetary policies also dictate the directions of our local markets and cause turbulence – exactly like in an aircraft.

The Indian markets are now moving more independently of the US markets because of the push by the Government and the political will to do so. It all began during Covid. The Desi government decided to put money into infrastructure projects. We have seen a massive increase in our road, rail, and ports network. This led to a higher circulation of money in the economy. Post Covid, the consumption has taken off too. This can be seen with the rise in the fuel needed by the country. FMCG growth for the past 4 years also tells a similar story.

So, what will happen in January 2024 when the US is likely to catch a cold? Will India sneeze too?

It is my opinion that there may be a partial hit to those industries exporting to the US. I.T. might take a hit. Highly leveraged companies in the infrastructure sector might be hit if interest rates and bond yields go higher. But overall, the downside protection is well in place for Indian investors. 3 sectors are likely to outperform – manufacturing, infrastructure, FMCG (rural). India is also expecting an above-average monsoon this year and that should give us the much-needed boost for the next 6 months.

So, stay invested, the fundamentals are strong. Political stability, growth drivers, revenue recognition stage, and a robust consumption cycle.