Mild recession in the US, an advantage to India

The world’s largest economy, the US slipping into recession but its impact is expected to be mild. Moreover, a slowdown in the US economy could benefit Asia, including Indian markets. US recession could weaken the dollar which could, in turn, benefit emerging markets.

As per Dan Fineman, co-head of equity strategy-Asia Pacific at Credit Suisse, India has a very robust economic cycle and a good structural outlook in an environment where developed markets are heading into a slowdown. A slowdown of the magnitude that we're expecting for the US actually could be pretty good for Asia.

The positive returns for India given upbeat growth in earnings adding that the main risk to the Indian growth story would be if the US recession is deeper than anticipated.

“As per the report, we can probably expect positive returns for India ... as it has good earnings growth, there isn't a strong argument for the market to be derating,” he said. “If the recession in the US is deeper than we’re anticipating, then that would be quite negative for global equities and emerging markets.”

On China, Fineman mentioned that it is still among the best choices for equity markets given cheaper valuations. “Even after the great rally they’ve had in November, the multiples are still at a deep discount relative to the rest of the region and global equities,” he said.

As per J P Morgan, the resultant slowing in aggregate demand could see the U.S. economy shed over one million jobs by mid-2024, which could then see the Fed start easing rates by 50bps per quarter starting in the second quarter of 2024.

Financial conditions are likely to tighten further, consumers are experiencing a significant negative sentiment shock, energy and food supply disruptions have worsened and the outlook for foreign growth has deteriorated. All these factors will likely contribute to the expected downturn.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA