India

For the next few months at least, inflation risk trumps recession risk for both US markets and world markets. This because, correctly gauged, the US jobs market is still supply-constrained with ‘jobs looking for a worker’ exceeding ‘workers looking for a job’ by 0.4 percent. A still supply-constrained US jobs market cannot enter a demand-driven recession until it flips back to demand-constrained, so bond investors should underweight duration. Plus: a new tactical trade is overweight India (INDA).

The Indian rupee remains vulnerable to further depreciation amid slowing growth, tight domestic policy, and fragile capital flows. Trade risks and a weakening external balance will likely keep INR underperforming EM Asia peers. 

A high US tariff and the lingering uncertainties on the US-India trade deal will hurt investors sentiment. This and contracting corporate profits will push share prices lower. Stay underweight Indian stocks.

In this chartbook, we look at the balance of payments across DM and EM countries. The US does not fare well, but neither do a few other countries.

India's IT service exports have been booming and will continue to do so despite wider AI usage. Indian IT stocks, however, will not benefit from it as the expanding Global Capability Centers (GCCs) in India compete with the nation’s IT companies, driving the latter's profitability down.