US dollar declining, global markets decoupling from the US market: Rupen Rajguru

Time of India

01-05-2025

Rupen Rajguru
, MD & Senior Advisor,
Julius Baer
, suggests a weakening
US dollar
and a shift towards
bilateral trade
are reshaping global markets.
US exceptionalism
drove significant equity flows into the US, but this trend is changing. Emerging markets like Europe, Brazil, and India are benefiting from a decoupling driven by liquidity, signaling a potential end to US technology's dominance due to recent policy shifts.
Help us make sense of the kind of global moves that we are seeing in the US market. I have read the note that you have come out with and you also talked about global markets decoupling from the US. What impact could it have on global markets in terms of emerging markets and also on our markets back home.
Rupen Rajguru:
As you rightly said, after the initial knee-jerk reaction, the global market seems to have decoupled from the US market and the reason is the way the entire tariff tantrum has come through. Not only that, but the way every day, new stances have been taken with the US president taking on various subjects. So two things are very clear. One, at least the US dollar is on its way down and that is getting reflected in the DXY as well.
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Secondly, there seems to be a new world order, wherein earlier it was a multilateral free trade world and now it is going to be more of a bilateral trade and the world will be slightly different than what it was earlier. In that event, what is happening is that thanks to the US exceptionalism for the last four years, on an average 80% of the overall flows into equities went into the US. But because of this new structure, probably a lot of the flows will get into some of the other countries including Europe, some of the other Asian countries, India included.
In that context, all the global markets, Europe this year has done pretty well, Brazil has done well, India also on a relative basis has done well. So there is a decoupling of the market thanks to the liquidity we are seeing and that structure is here to stay. For the last 15 years, the US market and especially US technology stocks have done exceedingly well. We believe that momentum is broken thanks to the way Donald Trump has acted in the last two-three months and purely from a capital market and liquidity perspective, it should be better for other countries including India.
While for the last two days, we are seeing a bit of a trepidation in the market because of the geopolitical tensions with Pakistan, India otherwise is better placed because the FIIs have turned net buyers. The flows have started coming back to India, The dollar index has cooled off and so has the bond. As far as the US is concerned, the flows might reverse and it could come back to emerging markets, especially India. Are we better placed now? Once the trepidation in the market is over, do you see the markets moving up again?
Rupen Rajguru:
What you said is true, but from a market perspective, liquidity is an important factor that will determine the short-term movement of the market. We have seen in the last two-three weeks, thanks to liquidity, the market is going up. But purely from an India perspective, India was going through a macro headwind.
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If you were to say FY25 probably will land up with
Nifty
earnings growth of 2-3%, we all know the reasons – starting from government spending, thanks to elections and other reasons, was not very high for the first seven-eight months. From a regulatory standpoint, as also from a liquidity standpoint, it was pretty tight and also the other factors of inflation being high, all that impacted the growth for the economy. All those factors are now reversing.
The Indian market corrected because of more domestic headwinds and now the global headwind has come through and hence the volatility that we have seen. Going ahead, we believe the domestic headwind will recede and all those factors – be it government spending or RBI focusing on growth and being very easy both on the liquidity side and also on the regulation side, are helping. Their focus is to get back growth as inflation has come off.
So, earnings-wise, probably we will now see the earnings growth reviving, but at the same time, we have to be mindful of valuations. Apart from liquidity and sentiment, the third leg is valuations and on valuations, after the current rally at 24,300 and thereabouts, we are at a fair valuation zone. Can we go to 25,000-25,500? Probably yes, but for that, earnings growth should come through which probably will start kicking in from the second quarter of the next financial year. So, to answer your question, unless and until global things do not deteriorate significantly, the war and all those scenarios will have a volatility in the market. But from an upside perspective, we do not see a big upside from here. But if there is a draw down because of geopolitical issues, this would be the market to be bought into.
Large private banks have largely been leading the rally right now. Are you seeing some rotation into midsize banking names? Do you believe that the sector churn could happen in that direction now and from the financials pack would you prefer banking over NBFCs given the numbers we have seen recently from the Bajaj twins which was rather disappointing? What is your pecking order within the financial space? Are the valuations justified for bank stocks?
Rupen Rajguru:
Banking has been the star for last two quarters and we have been positive on banking and large private sector banks which has actually played out. So, after the rally in some of the top three, top four private sector banks, valuation-wise, were in a zone in which they were much below their long-term average and now some of these banks are getting towards their long-term average and some are actually higher than their long-term average as we speak.
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Now we have to look through from a sector perspective. Banking as a sector did pretty well in that environment of tight regulation and tight liquidity and now that environment is changing so the growth will come back. Typically, after the leaders move in markets, time comes for the mid and the second tier banks. In that space, we like some of the other banks and that would also include some of the NBFCs where there has been changes in management.
Some of the smaller banks have CEOs who were KMPs of some of the large banks. Some of those guys are now doing a lot of changes in the banks and the structures in which they operate. We are pretty excited about that. So, we are evaluating not all, but some of the banks wherein we are seeing change in guard and strategy. We like those banks. We believe growth would definitely be higher on the NBFC side. You mentioned the Bajaj twins, I think numbers were broadly in line and nothing unusual about those numbers and in an environment of a lower interest rates, probably NBFCs are better placed because a lot of their loan books are fixed and we are more constructive on NBFCs vis-à-vis some of those banks.
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