What is the message out there, wait for clarity, what happens between China and US and where this entire trade war is going to head and then see where the dust settles down?
Amnish Aggarwal: It is too volatile a situation because it is not something that there is some announcement which comes and the things settle down. So, every day we are witnessing, for example, today your tariffs on China to go up by another 50% or pharma to come under, it is too volatile a situation to make any fresh bets in the market at this point of time.
And I do not think the direction it is taking that I am not hopeful that it is going to settle too soon. It is going to take its own sweet time.
I do not know, maybe three months, six months. And it is going to be a very-very volatile year, both in terms of, say, global economy, overall growth as well as in the markets.
Having said that news flow, of course, is not going to stop. You have got the RBI credit policy announcement coming in today, then you have got TCS’ numbers, then all of the IT will come out with the earnings and we are going to officially kickstart the earnings for this quarter. Let us first start with the RBI. What do you think is going to sort of at least please the markets, if not make them completely happy or thrilled because this is a global situation, we really need to see how globally things span out with US’ stance as opposed to tariffs. But what do you think the RBI can do at its end?
Amnish Aggarwal: The simple thing is that this time around because the inflation is also under control and there is quite a bit of volatility, RBI will definitely make a comment on that. But 25 bps rate cut is something which seems to be more like a certainty as of now.
And then in the coming few months, what happens on the inflation front, how the monsoon pans out, these are some of the factors which will pan out how the rate cuts happen. But now, given the volatile situation, given the global backdrop, beyond the rate cuts which are expected today, one or two more rate cuts may be happening over the next three to six months.
The other thing that everybody is watching out for is definitely the recent news flow around tariff, 104% tariff being announced on China. Do you believe is there a case in any sector to watch out for in India, which could be a beneficiary if China has this setback and India has an opportunity to grow in any of these sectors?
Amnish Aggarwal: It is easier said than done, because the supply chain realignment, it does not happen in a day. Now, there might be some sectors where India directly competes or we are having sufficient capacity, maybe you can say something in home textiles, maybe you can say LGDs, where China is a market leader, India is number two.
So, there could be solitary cases here or there where India could be beneficiary, but we should not forget that in large, in the overall products or the consumer baskets, it is not only India, it is countries like Vietnam, Taiwan, Thailand, Turkey.
There are a lot of countries which are going to buy for a lot of such like products. So, it is not simply saying that it is a case of China plus one or things like that because ultimately China is the largest trading partner of US and if you increase the duty, supply chain realignment is going to take time and ultimately the cost is going to rise for US consumers.
How the US consumer behave, how the demand behaves over there, and to what extent Indian companies will be able to exploit that opportunity, we will come to know only over the next three to six months. So, it is all like making a conjecture at this point of time.
As far as your tariffs on China going is concerned, it is not a very-very pleasant situation even for India because in some of the products where Chinese have got huge capacities, I foresee increased dumping happening from China in many of the commodities and which actually might start pressurising the Indian industry much more than what we have seen in the past few years.
We will be starting the results season soon. So, help us understand that specifically from the IT space, what are you pencilling in and especially on the commentary front, where do you see the key commentary to be focused on this time because the street is definitely not having much of an expectation, what has been happening in the US markets, the recessionary fears are definitely hitting hard on the IT space. But give us your sense that what is that that you will be watching out for.
Amnish Aggarwal: We have recently cut our estimates anywhere between 5% to 7% for most of the IT names. And as we stand today, the IT sector is in a bit of flux because any which ways, your demand from Europe are very soft. Demand from auto segment and some of the ER&D segments are soft. And now with this trade war starting and if it results in some sort of a lower growth or some sort of recession happening in parts of US, then Indian IT services companies they are going to be on the receiving end.
So, my sense is that as we go along, if this trade war escalates and the way it seems to be, there is a probability of more earnings cut and a softer commentary from most of the IT companies.
Except the fact that they are trading on good free cash yields, the companies have good cash flows on their side, they are good dividend paying company, but in terms of growth the visibility there looks extremely poor at this point of time.
