3 Reasons Why Neelkanth Mishra Is Not Bullish On Equities, Trump Tariffs Not One Of It

Summary

Highlights

• Mishra discusses the potential for prolonged economic uncertainty due to trade tariffs. 📉
• The U.S. aims to renegotiate trade deals on a bilateral level, moving away from a multilateral approach. 🌐
• Tariffs could backfire, affecting U.S. consumers who may shoulder most of the costs. 🛒
• India may face minimal economic impact, but global financial markets suggest caution. 🇮🇳📉
• Mishra predicts shifts in global currency dynamics, particularly with China's Yuan. 💸

Key Takeaways

• Neelkanth Mishra isn't bullish on equities due to global uncertainties! 📉
• Trump's tariffs aim to disrupt the multilateral order and increase U.S. revenues. 🇺🇸💰
• India's economic risk is relatively low, but market impacts are a concern. 🇮🇳
• Potential Chinese currency devaluation could stir the financial pot. 🇨🇳
• Global economic slowdown looms, causing market jitters. 🌍😬

Overview

Chapters

• 00:00 - 01:00: Introduction to Neelkanth Mishra and recent global developments The chapter introduces Neelkanth Mishra, chief economist at Access Bank and head of global research at Access Capital. The discussion focuses on recent global developments, specifically the tariffs and counter tariffs imposed by various countries over the past 48 hours.
• 01:00 - 03:00: International responses to US tariffs The chapter discusses various international responses to US tariffs, particularly from key trade partners. India and other major economic entities, such as the European Union, are mentioned in the context of planning their responses. It highlights that among the 12 countries or groups affected by the tariffs, Canada, China, and the European Union, which together constitute about 85% of US imports, have explicitly stated their intentions to contest or retaliate against these tariffs.
• 03:00 - 06:00: Objectives behind US tariffs and expected global consequences The chapter discusses the potential global consequences of US tariffs, with a focus on the reactions from different countries and entities. Notably, Italy's Georgia Maloney, a European leader who attended Trump's inauguration, indicates a willingness to cooperate with the US, whereas other European Union countries may consider retaliatory measures. The chapter predicts that significant retaliation might primarily come from China, and the global scenario could evolve depending on China's response following their tomb sweeping holiday. Risks associated with these international dynamics are also explored.
• 06:00 - 09:00: Implications of US policy: global growth and Indian economy The chapter discusses the implications of US policy on global growth and the Indian economy. The Treasury Secretary, Scott Bessend, advised patience following a Rose Garden speech, indicating that the announced tariffs are just headline measures and open to negotiation. The emphasis is on avoiding immediate retaliatory actions from other countries in response to these tariffs.
• 09:00 - 13:00: Monetary policy and economic outlook for India This chapter discusses how countries like China, with high duties, might be compelled to devalue their currency to maintain economic balance. It highlights the potential chain reaction of a currency devaluation and emphasizes the need for a strategic framework response rather than just reacting to individual actions, such as those taken by the Trump administration.
• 13:00 - 18:00: China's currency risk and its impact on global markets Chinese objectives regarding currency policies are explained, emphasizing three key goals. First, China aims to prevent the US from bearing the costs associated with maintaining the multilateral world order. Historical context is given, referencing bilateral deals starting in 1934, and changes after WWII. The chapter explores how these objectives influence currency risk and the broader implications for global markets.
• 18:00 - 23:00: Impact of global uncertainty on Indian markets and possible outcomes The chapter discusses the impact of shifting from a multilateral to a bilateral world order on Indian markets. It highlights how the US found the most favored nation status rates unfair, prompting a move towards bilateral agreements. This shift opens up various industrial policy measures like export subsidies, currency devaluation, and labor subsidies, which could influence Indian market dynamics.
• 23:00 - 25:00: Future of global economic systems and equity markets The chapter discusses the unpredictability of global economic systems due to changes in behaviors. It highlights the objective of governments to generate revenue through tariffs, with the recent announcement accounting for $550 billion. This is juxtaposed with tax cuts, aiming to offset the impact, reflecting a strategic approach to balance fiscal policy. The discussion indicates the complexity and dynamic nature of future economic systems and equity markets.
• 25:00 - 27:00: Conclusion: uncertainty in global markets and final thoughts In the conclusion of the discussion on global markets, it's noted that while some tariffs will likely be negotiated down over time, particularly in industries like footwear and apparel, there's minimal hope for certain countries to manufacture these products cheaper than India, Bangladesh, or Vietnam. However, the focus remains on generating revenue by offering access to the US consumer market. Despite uncertainty in global markets, these tariffs serve as a revenue stream.

3 Reasons Why Neelkanth Mishra Is Not Bullish On Equities, Trump Tariffs Not One Of It Transcription

• 00:00 - 00:30 time to get in a very special voice niland Mishra chief economist Access Bank and head global research at Access Capital with us on the show nilkand always a pleasure to talk to you thank you for taking the time out thank you thank you guys thank you for having me no the pleasure is entirely ours how how are you viewing the developments of the last 48 hours uh and let's start off with the basic act of the tariffs that have been levied and some counter tariffs that have been levied by some comp some countries and how what and and
• 00:30 - 01:00 and and India's plan about the same see um of the 12 countries slash uh groups like say European Union um which account for about 85% of uh US imports uh three have said that they will contest slash uh retaliate so that is Canada China and the European Union
• 01:00 - 01:30 even within the European Union I think u you know for example Italy Georgia Maloney who was the only European leader to attend Trump's inauguration has said that we have to work with the US uh the rest uh want to retaliate but my sense is that the retaliatory measures uh will will perhaps be serious only from China and we have to see once the tomb sweeping week weekend holiday is over what exactly they come up with um and this is where I think the the the risks
• 01:30 - 02:00 are which is the the second order effects so while uh the Treasury Secretary Scott Bessend did say that immediately after the Rose Garden speech that uh that countries should have patience that these are just uh headline tariffs u that we are open to negotiation uh and don't be in a hurry to slap uh second I mean basically retaliatory measures um I think the concern will be that u especially
• 02:00 - 02:30 countries like China where the duties are as high as 54% may have no option but to devalue their currency and uh the moment the the uh the devaluation of the currency starts to take effect then I think uh things start going out of control and frankly to take a step back and just to lay down the framework instead of just responding to uh you know the each of the steps that the Trump administration is taking I think it's very important to
• 02:30 - 03:00 understand what their objectives ives are and why are they uh doing what they are and we can see three key objectives the first is they do not want the US to pay the cost of maintaining the multilateral world order uh uh and and so the executive order uh actually explicitly states that uh they had started with bilateral deals in 1934 and after the second world war they tried to
• 03:00 - 03:30 get the multilateral order working the most favored nation status uh rates were set and then they found that those rates were unfair to the US and therefore they are now going against it and they are going to the bilateral uh world order now when that starts to happen uh all kinds of industrial policy measures uh now become fair game and so export subsidies currency devaluation uh labor subsidies uh and and so several types of
• 03:30 - 04:00 behavior will now come into action and which will make predictability very low the second objective is they want to generate revenues out of this so the tariffs announced uh the night before uh account for about $550 billion um remember that they had only about $7980 billion of uh revenues from tariffs in uh the previous year uh now they want to add about $550 billion and they in parallel they want to offset this with tax cuts so uh this by itself is also an
• 04:00 - 04:30 objective so even though eventually some of the tariffs will get negotiated down like for example I don't think they have any hope of being able to manufacture footwear or apparel and do it cheaper than India or Bangladesh or Vietnam uh so those tariffs will I think will get brought down but um I don't think uh they're going to give up on the desire to generate revenues out of uh giving access to the US consumer and the third objective is that
• 04:30 - 05:00 u they think that uh the US dollar is far too strong um because of the US dollar's reserve currency status uh it tends to be uh excessively strong it bears the burden of global uncertainty so whenever the world used to be uncertain the dollar would appreciate and they want to move away from that because they think that it is becoming unsustainable so uh when you see these three objectives uh a lot of what they're saying and what they're trying
• 05:00 - 05:30 to do starts to make sense uh it is not justified economically even the decisions that they have taken in terms of how the rates have been decided and they have been explicit about it it's right there on the USDR website um it is like you know trying to achieve bilateral trade balance which anyone will tell you is not achievable so so in this context what we should expect is continued uncertainty uh remember that uh even if the tariff receipts were to be converted
• 05:30 - 06:00 into uh uh into tax breaks for the US consumer the uh the the problem is that uh because of uncertainty those will be saved and therefore this is a fiscal contraction in fact on a ballpark estimate one can safely say that uh 1 to one and a half% of world GDP growth can be at risk because uh investments get pushed out because for another 69 months companies will not be clear on what the
• 06:00 - 06:30 eventual tariffs are going to be what the eventual uh currency exchange rates are going to be and therefore they will pull back on investments and that itself will drive a slowdown so I think we are headed for a period of sustained uncertainty which is not very good for financial markets so so Nan with with an assumption that that's exactly how it plays out and then uncertainty is the name of the game what can economies and central banks of countries like India do we have a central bank meeting next week
• 06:30 - 07:00 for now the RBI and the government have put up their hand and say they want to support but this is it out of the blue for a country like India which is also which may not be exporting as much but could be impacted by the collateral damage of global growth suffering and how does India combat that so frankly I don't see um that I mean on a relative basis I think the economic risks to India are among the lowest that I can see um the only concern I have is
• 07:00 - 07:30 on the markets uh because frankly the markets are what are much much more integrated to the world than our economy is so uh I will not reiterate what I'm sure every guest uh that you had over the last two days would have told you that uh exports to the US as a percentage of India's GDP is very low in fact our estimate is that uh uh the additional duties will cost about $10 billion uh to India or Indian exporters and uh
• 07:30 - 08:00 the uh the the US consumer will have to bear almost 60% of that basically don't assume that all of these $550 billion will be paid by the uh by the by the exporting country uh because many of these prices will get passed on uh and therefore the US consumer will be paying the burden so if you adjust for that then there's like a.1% impact on the Indian economy uh in fact on the
• 08:00 - 08:30 medium-term basis if Vietnam is not able to bring down its tariffs uh a lot of electronics assembly a lot of apparel assembly can actually start shifting to India as well so uh frankly economically I think there is less of a risk what has also happened and thankfully so that the drivers of uh India's economic slowdown uh in the last year uh which were fiscal regulatory and monetary the fiscal uh is I think uh less of a headwind than it was like last
• 08:30 - 09:00 year we saw 80 basis points of fiscal deficit decline in FI26 we going to see only about 40 basis points so it's less of a headwind uh regulators have uh financial regulators I mean there are new ones in place they're they're saying that we don't want to be impeded to growth uh and then regulatory easing has started and on the monetary side the biggest problem was that uh liquidity was unduly tight uh for for 16 months the gap between the certificates of
• 09:00 - 09:30 deposit which effectively mark the the rates on the certificates of deposit which effectively mark the cost of funding for for financial firms for banks um were 150 200 basis points higher than what the uh the OIS basically the the repo rate was and uh uh so that was primarily because of tight liquidity uh I think in the last 2 three months we have seen the RBI act uh very forcefully very decisively uh and
• 09:30 - 10:00 now has replenished the liquidity that was lost because of currency interventions so the CD rates have started to come off uh it is I think reasonable to expect that um uh that over the next two months the deposit rates will also start to come off and then finally the credit easing cycle will take off i think uh in the MPC meeting next week um uh the consensus I'm frankly I'm still worried about inflation but I think the overturn window for the MPC is very narrow now
• 10:00 - 10:30 they are very likely I think uh uh to cut rates again the repo rate comes down to 6% uh so some of the self-inflicted growth slowdown uh is now starting to reverse and therefore economically I see less to worry about and more worried about what happens uh to uh to the financial markets because the equity risk premium despite all the economic uncertainty we've discussed is still near historic lows in in India and the world India's P premium is low but you
• 10:30 - 11:00 know the P multiples globally are also still elevated uh I also see a risk of sometime in the next 3 to 6 months the Chinese currency coming under pressure uh and that will create new types of policy headaches for everyone uh and of course then there is the global growth slowdown which I don't think we can be totally immune to given that we do have some exposure uh through through our exporters to IT services companies and of course global commodity prices understood uh uh you know fairly
• 11:00 - 11:30 detailed uh in that sense nil Kant Harsh also joining in you you've mentioned the Chinese currency risk a couple of times contextualize that for uh us and our viewers that's that's Thank you for asking that uh uh get ready for another long answer uh so for a country that um that has a has a bill has a trillion dollar goods trade surplus and has maintained a current account surplus for most of the last uh three decades um uh people will
• 11:30 - 12:00 find it surprising that the balance of payments in China are under stress um is is under stress and uh and I think that there there are good reasons for that the first is that their their net international investment position so how many how much of global assets they own and what are their minus what their global liabilities are is only about $2.4 trillion so this is uh only about 12 13% of GDP what is even more worrying
• 12:00 - 12:30 is that and this is partly because a lot of the current account surplus they booked over the past two decades has been lost because of capital flight so in just in the last 10 10 years u the the errors and omissions in the balance of payments uh which is a measure of timing differences has and should cumulatively be zero is actually $1.4 trillion so that's at least the amount that they have lost uh because of capital flight so the the and the uh and and therefore the earnings that they
• 12:30 - 13:00 have on all of the past savings are actually less than the cost that they have to pay on their foreign liabilities and their primary income is actually negative so as you all know they also have a negative uh services trade balance so they have a lot of outgoing tourists they have a number of students that study abroad um and so so when you combine all of this their current account is actually not as good as you would think it is but I think the biggest challenges for them are on the capital account today their net FDI is
• 13:00 - 13:30 minus $200 billion because inbound FDI has more or less stalled uh and and I think will remain weak for a while uh outbound FDI needs to be high and has been high uh so so in order to sidestep some of the retaliatory actions against China and just the US but if the Chinese start dumping into other markets I think this will the the the barriers will start getting uh erecting uh in other economies as well they have to do a lot
• 13:30 - 14:00 of outbound FDI this is exactly what Japan did uh after the mid80s uh where it started to invest in factories outside Japan uh China needs to do the same to protect its market shares what is even more important is that uh their 1.7 1.8% uh yield on the 10-year bond is far lower than what you see even in the developed market so therefore in the last 12 months uh the 12 months ending September uh their trade credit outgo was like $200 billion so uh the the on
• 14:00 - 14:30 the balance of payment side they actually have a negative balance of payments the reason why they are I think uh preventing the R&B for depreciating is that like what we saw in India when we move from a fixed exchange rate to a volatile exchange rate uh there is a very sudden shortage of dollars which is exactly what India went through uh and I think in China also they will go through that where exporters suddenly stop their supply of dollars because they think the
• 14:30 - 15:00 currency is weakening the importers tried to start to hedging start to hedge uh when earlier they were not hedging and when you put all of this together it creates temporarily a lot of pressure on the currency now the problem is if because of these tariffs the the trade surplus itself say shrinks by 2003 $300 billion imagine how much the pressure on the balance of payment is going to be so they may not be doing it immediately but when they see that this is inevitable I
• 15:00 - 15:30 think there will be uh uh some a lot of volatility uh in the currency markets okay uh uh point taken uh and and how should one look at and one on the global macro one on the domestic macro and therefore uh sir explain to us one is you've already seen a quarter% cut on the repo you're ex you're expecting one more rate cut next week how quickly does this start to translate on
• 15:30 - 16:00 um on Indian lenders as well as consumption so on both of those you're already starting to see that in terms of certificate of deposit etc but but true translation or true trans true transmission will happen when deposit rates and loan rates start to change when how quickly do you think that happens that starts to happen in a couple of months so u see already the the 12- month CD rate which was at one point 760
• 16:00 - 16:30 for a certain type of borrower uh has fallen to 710 uh there are people who expect it can actually fall to 675 uh there are some extreme cases where people think it can fall to 650 uh let's see what happens but the point is that uh the spread see the OIS the overnight index swap which is effectively the average expected rate of the repo rate um over the next 12 months uh uh when it was 610 611 the city rate was 7 760 so there was a 150 basis point gap um and
• 16:30 - 17:00 and for some of the smaller banks it was actually 8% plus um that 150 uh should actually be 6070 if the if the uh normal liquid ility conditions prevail and so if the uh if the expect if the if the repo rate is at six and the the and the one year is say 590 and uh so then I think 650 uh on the 10 years the one one year 12 month CD uh
• 17:00 - 17:30 does not seem uh that irrational I'm not sure it will fall that fast but it may and uh so as that happens the marginal cost of funding uh for all banks uh starts to come down significantly uh and I won't be surprised if in the next uh week or so maybe immediately after the MPC meeting we start to hear of deposit rate cuts u and uh so so as that happens uh the
• 17:30 - 18:00 weighted average uh you know so so the MCLR then starts to fall the the weighted cost of financing for the banks falls and then given that credit growth has slowed so sharply uh there will be products where uh which are very rate sensitive say like mortgages where the banks will start cutting rates and so I think in a in a few months we should start to see the transmission happen frankly just two months back I would not have expected
• 18:00 - 18:30 that because uh liquidity conditions were so excessively tight but court could see the significant interventions by the RBI uh in terms of uh you know uh large amounts of uh OMOs uh and very significant amounts of buyell swaps uh they have more than offset the five lakh crores of liquidity they had been forced to suck out when they sold dollars uh so this decisive action by the RBI uh in addition to I think when the RBI dividend gets paid in end of May durable
• 18:30 - 19:00 liquidity can actually go to 2% of entity which I think will be a very healthy level uh what we are also seeing and this is very comforting that at one point the RBI uh had an $80 billion forward short position on the dollar now think about a bank which is looking at those numbers and as of end of February and uh you're worried that there's also an NDF short which is not visible there and what if the RBI is forced to sell
• 19:00 - 19:30 more dollars and then the liquidity dries up again right how can I uh sort of grow my lending but now what has happened is that uh it looks like NDF shorts are now like 10 12 billion the uh from what currency traders uh estimate the 80 billion forward short is now 60 billion of forward short and so when you put all of this together there is sufficient comfort that banks can take and therefore they and start growing their credit book which is actually very supportive for the Indian economic moment dutchwood so economy is
• 19:30 - 20:00 relatively unscathed i heard you say twice that you're worried about the markets what can I mean I'm I'm guessing collateral damage in addition to growth could be the issue as well even if the economy grows per se but what could turn this neil I mean is is it is it renegotiation by various nations including India and therefore global growth not suffering as much um or or and and because the the sideshow of a lower crude price lower DXY all of that should be net positive so what can turn
• 20:00 - 20:30 nilan Mishra's stance is it the solution to the uh trade talks or is it something else my stance I'm an observer uh okay observation let's put it that way so I I so I okay I'll tell you what what the signals that I'm looking for so you're absolutely right i don't think uh um so these are very large costs uh while as we discussed earlier the the Trump presidency interprets its electoral
• 20:30 - 21:00 verdict as as u uh sort of breaking apart the current system which was not working for the US is their interpretation um and therefore uh I think they want to uh uh sort of build a new system now uh in doing so uh they seem to be doing things in a very halfhazard way um and and uh so the question to ask is what can what can force them to to pull back from all of
• 21:00 - 21:30 this uh seemingly random destruction um and it has to be like it's a democracy uh I think there are u so there are some voices of discontent which has started to emerge in the congress uh for example against these tariffs uh remember that it will be his party first which has to start putting this pressure as of now everyone is aligned they all know that if if uh the president supports them they can get reelected and so on so forth um but as the economy
• 21:30 - 22:00 weakens I think popular support and this is how democracies function that there will be uh a feedback loop that starts to get generated uh and then uh collective actions can start happening so so we have to wait to see uh uh you know his uh uh the popular support for uh for the president uh uh start to turn because the pain then starts to become very real remember that uh he's also trying to address some of these concerns like for example if say prices for some
• 22:00 - 22:30 products go up but he's going to position it as the cost of bringing manufacturing back to the US he's also pressured the OPEC to to increase uh uh oil output so that fuel prices at the pump which are a very important signal for uh for inflation expectations in the US actually come down which frankly will benefit us as well but but these are things that uh they will keep doing there are other items on their agenda on how to bring down debt to GDP how to
• 22:30 - 23:00 weaken the dollar um and and so all of these uh I I I think will be will be coming into play uh the corrections start to happen the uncertainty starts to erode only once the popular support uh for for the president uh starts to come down and that means uh real economic pain uh on the ground uh in the US what I'm most worried about is that it is somewhat easy to uh to to break apart a current system where uh there
• 23:00 - 23:30 was multilateral agreement where people uh had had over decades uh uh after Breton Woods but even after Breton Woods in 45 you know it took 12 13 years for the Bretonwoods agreements to get implemented uh there have been flaws there are problems but at least there was a collective decision to behave uh once you break that apart I think reassembling that uh becomes a significant issue so uh it'll be very challenging i'm hoping it doesn't go
• 23:30 - 24:00 that bad but uh it is reasonable to expect that things will worsen a lot before they get better the only thing I worry about in the from the perspective of equity markets is that the equity risk premium which is uh uh which needs to be at a certain level because equities are a risky asset class are at historic lows when economic uncertainty is at historic highs and so that that that and and you know it's not a model variables equities premium is a
• 24:00 - 24:30 discovered variable it is when some investor just gives up look at what happened to pharma today right i mean yesterday I felt that pharma makes no sense for the US to impose duties because most of the value of pharma is IP manufacturing it does not really make sense where you do it i mean generics companies uh you know sell for 20 cents and it's sold at $7 in the US um the the point is uh he still wants to impose his duties and so eventually investors get
• 24:30 - 25:00 will get fatigued tired uh saying that look we can't predict this behavior and therefore we are kind of pulling back and that's what worries me that I think that's where there is a disconnect and the price to earnings multiples we are used to need to be revised now yeah so well said it's it's the it's in in simple terms maybe just the just the uh uncertainty will take its toll more than anything else because or unpredictability of what Donald Trump does so well put Nilan Vishra well thank
• 25:00 - 25:30 you so much for all of these insights just absolutely lovely talking to you today yeah thank you thank you [Music]