Dear All, Appreciate your thoughts on the scenarios for the next 2-3 years:
Current Scenario as I understood:
US Economy doing well --> Tightening Liquidity in US–> Yields rising–> Dollar Squeeze–> All Emerging Markets currencies depreciating against USD–> Capital Outflow --> EM Equity in correction/bear phase.
India specific: in addition to above India is more vulnerable due to Oil rising + Election & policy uncertainty.
2017: it was exceptional due to the huge flux of liquidity from Demonization, which caused rally despite FPI continuous selling.
Possible Scenario for the next 2-3 years: as per Ray Dalio
Domestic and foreign demand for U.S. debt won’t keep up with the nation’s borrowing needs, and the Federal Reserve ultimately will need to print money to fund the deficit rather than raise interest rates. That will result in a steep depreciation of the dollar, said Mr. Dalio. The greenback could fall as much as 30%, he said.
USA: Tight liquidity–> Slow growth–> Money printing to balance Credit/debt–> Inflation = Dollar Depriciation—> Capital Inflows for EM…? --> EM Equity Bull Market…?
Mainly I am concerned, will the inverse relation will also hold true that Dollar Depreciation --> Capital Inflows for EM or India?
In an optimistic scenario: As I am optimistic and I think in long-term India’s growth & fundamentals will improve, as EV(Electric Vehicle) Revolution can take care of Oil pain as 65% of Global Oil Consumption is for Vehicles which can be electrified, and scarcity of growth across the globe can give India equity premium as well with FPI capital inflow.
In Most likely scenario: India keep doing what it has always done, disappointing both optimistic & pessimistic, and have just enough reform & growth to have further hope.
In Pessimistic scenario: India again misses EV revolution and AI + Robotics makes China & US much more efficient & competitive, India gets Jobless moderate growth, last standing consumption theme also fades away.
Currently I am invested 55:45, earlier it was 45:40 also 15%PF short on(credit linked stocks- Auto, Finance, Real Estate), recently moved 10% more to equity also added some Gold ETF, and plan to invest only income from debt PF till US growth is good, also I intend to go up to 80-90% allocation to Indian equities (Demoestic stories mainly) whenever there is a crash or US growth slows and inflation=Dollar depreciation starts, which in turn could start capital flows back to EM and India.
Just want to have other member views on the approach & scenarios, if this makes sense or i am just thinking too much?