Markets eye tariff clarity and Middle East calm for next big move: Ashi Anand

"The RBI has also cut CRR amidst various other liquidity measures. Monetary policy is clearly easing and the overall growth slowdown that we have witnessed both in the Indian economy and in corporate earnings, as interest rates start to come down, this should help propel consumer demand, it should help propel larger ticket consumer purchases such as auto, real estate, etc, so you could see some form of a demand revival happening there," says Ashi Anand, Founder & CEO, IME Capital.

What is the next trigger that the markets are awaiting because we have been pretty range bound if you please for the last many trading sessions now and quite lacklustre on many days.
Ashi Anand: So, in terms of the next trigger, I think there are three core things that we are really focusing on in terms of wanting to see clarity on that. Firstly, there are two looming uncertainties on the market. Any clarity around what is happening either with Trump tariffs and what the overall endgame is. Any clarity around that could very clearly act as a trigger for some form of an up move. The second element is really what is happening with Iran and Israel, that is a potential conflict that has the potential to escalate quite significantly. Hopefully, it remains where it is at this point in time and Iran does not go in and blockade the Strait of Hormuz is one of the concerns or like other players get involved in this conflict. As long as it does not escalate further, that is good news. Every passing day where you are not seeing further escalations would be seen as the markets of sign of this not going out of hand.

So firstly, for a more prolonged up move some clarity around both of these elements would help, some amount of negativity associated with this basically going away and could help markets move up. From a slightly longer-term perspective, the one big positive for this year is the fact that interest rates have been reduced by 100 basis points.

The RBI has also cut CRR amidst various other liquidity measures. Monetary policy is clearly easing and the overall growth slowdown that we have witnessed both in the Indian economy and in corporate earnings, as interest rates start to come down, this should help propel consumer demand, it should help propel larger ticket consumer purchases such as auto, real estate, etc, so you could see some form of a demand revival happening there.

It is again also very positive from a capital goods perspective because ultimately the IRR and the payback periods on new incremental capex are determined by a cost of borrowing. So, this overall growth slowdown that we are currently witnessing, having interest rates come down is a very important first step towards an eventual growth recovery. And as markets get more confident about this, I think that is really what kind of waiting for in order to see a more sustained up move in the markets.

What is your own sense of IT and I am asking because that is perhaps the most US- linked sector if at all. Other than a few niche IT companies from within the midcap arena, the larger services play and the concerns around if the tariffs are slapped, what kind of a slowdown would it get into and then what happens to client spends and it is pretty much a domino effect from there. Do you think it is still worth risking it?
Ashi Anand: So, it is a bit of a difficult call, but the one important thing to understand is a very large amount of the concerns do seem to be priced into valuations. So, if you are looking at Infy, you are looking TCS, look at any of the mainstream IT companies, look at their valuations to the overall markets, to peers, to their own history, there is a lot of valuation comfort that is there. Our view on it as a sector is that if you are going to see a more prolonged US economic weakness or recession, if you are going to see a growth slowdown, we do not necessarily see further downside in these companies.

We believe you are factoring in a lot of these concerns. However, if one were to be able to take a call on things not being as bad as they are currently being panned out to be, that Trump is actually using this as a negotiating lever, but the actual tariff outcomes are going to be a lot more benign than tariffs being thrown around at this point in time.

If we do end up with an outcome a few months down the line where there is greater clarity around tariffs, it not being as bad as expected and therefore a lot of pent-up demand of US corporates who kept spending on hold actually gets unleashed, this could be a place to get a fairly interesting bounce back rally where given how cheap valuations are, but you are quite dependent on that event in terms of how exactly US trade, US tariff, and the overall economic outlook does pan out.