Mark Matthews on why FTA with UK, US trade deal shouldn't matter much for India

Economic Times

2 days ago

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MD,, believes the India-UK FTA will have a small impact on India. He hopes it will encourage a US trade deal before August 6. A US deal could boost the stock market. Matthews anticipates a US tariff for India between 15% and 20%. He considers US trade less crucial for India than for other nations.: I do not know what the impact will be for the UK economy, but it is not big for India as you know UK trade is an extremely small part of India's overall economy. But what I would say is that it should be a boost for sentiment because they have been doing these talks for about three months and hopefully will put pressure on the government to do the trade deal with the United States before the August 6th deadline. That would be a much needed boost for the stock market if that comes through.Broadly I would expect it to come in somewhere between 15% and 20% with 20% being the ceiling for the Southeast Asian countries like the Philippines and Indonesia. They are at 19% and then 15% was the recent trade deal with Japan. So, that is the range I am looking for. If it was above 20%, then I would be disappointed, I do not know about the market. Unlike Japan or the Philippines, trade with the US is not material for the Indian economy. I find this is frankly more noise than substance.: I like two things. First, I like the fact that the sector is down almost 20% so far this year. It is not across the sector but there are pockets of very deep value. This is a place in India where you can find deep value. And the second thing is that the guidance from management in the most recent quarterly results was largely positive, looking for better times ahead. So, those are the two reasons why we like it.I am sorry I do not have a view on that, but I can tell you what we think about the consumer space. It will be a beneficiary of the Rs 1 lakh crore tax breaks that were announced in the Budget back in February and we should start to see that filter through, but also the one percentage point cut in the RBI's rate since the last five months – these two forces should be beneficial for the entire space, especially for bigger ticket items like autos and property.I think I was wrong and I remember that conversation. It is probably higher than when we last spoke. I felt that it was overbought because at that time it was up about 25% from the beginning of the year. Now, it is up about 28%. I think what I told you at the time is I preferred the idea of buying stocks in Hong Kong relative to gold. So, I suspect on that basis, it might have been the right call. Hong Kong stocks have done better than gold since we last met. But yes, if you look back over the last 100 years, gold's return is on average 5% a year in US dollars. So it has been a very fine investment, but it does move in spurts and we have just had one of those big spurts over the last two years.So, I would have thought it was due for a break, and it continues to go up. Long-term, the thing that speaks in favour of gold is that most central banks do not have enough of it and they would like to diversify away from a very heavy concentration in dollars. In fact, there was a survey that came out last month that showed off all the assets that the major central banks of the world said they intended to increase their allocation to over the next 5 to 10 years, gold had the largest vote in favour.So, there will be a steady buyer of gold from central banks, but they do not tend to chase the price. They tend to be very calm and steady in their buying of it. I do not want to ramble, but what I am trying to say is I still feel that it is overbought in the short term, but longer term it should continue to demonstrate that attribute of going up about 5% per year over the long term.