Global economy is in a gloom with equity and commodity markets sliding, currency markets continue to be volatile and central banks flagging concerns over the growth prospects.
What kind of impact will the cap on steel capacity by China have on India?
Of course, whenever capacity is taken out of any industry it helps the people here a lot, there is no question. And, it is good for the steel industry worldwide. But, what you may be missing is that there might be in the next couple of years that the demand is going to go down too worldwide because we are going to have serious economic problems where you will have less demand, which will offset to some extent the cut in supply.
You have a strong view on the dollar and the Chinese market. In this context, how do you see the industrial commodities play out?
I don’t own steel or iron ore anywhere in the world because of all the massive capacity which has been coming online. Everywhere the iron ore companies down in Brazil and Australia went nuts adding capacity and likewise, the steel industry in China and elsewhere. For most industrials especially steel, I am not optimistic. Other industries of metals are probably making their bottom whether it’s copper, zinc or lead. Most of them are down and are probably making a bottom this year or the next year.
Going back to China and their planned capacity cuts for the next five years, given its huge over-capacity currently of almost 400-500 million tonnes compared with India’s total capacity of 80 mt, do you think that will hardly have any impact in terms of Indian operations or will it be only be a sentimental impact?
It will lot more a sentimental impact because they are taking over 100 million tonnes out of world capacity, which will help some. But as I said, you still have massive over-capacity. They are taking it out slowly — they are not doing it this afternoon. It is going to take them a while to take it out of production. And still there is going to be a demand problem. This year and next year we are going to see serious economic problems worldwide and when there is a problem demand goes down.
What about other commodities? How much low can crude oil prices fall especially given what’s happening now in the steel and industrial metal space?
In my view, oil too is making a complicated bottom. If we have some kind of panic, who knows how low oil or anything else can go? You know as well as I do that you have hysteria or a panic, things go to crazy prices. But oil, other than the panic, is making a complicated bottom. Capacity is coming out of oil especially in America. We are seeing the bottom for oil.
Given the context that major central banks are talking about a possibility of softening of the economic conditions and your view on safe haven buying of long US dollar, what do you think about the commodities in particular?
When the dollar goes up, commodities are soft all over the world, no matter what the commodity is. I suspect you are going to see more of that. I am not buying gold yet. I am not buying anything — stocks, commodities or bonds for that matter. I am sitting and watching. I am short on the US and long on China. I would expect more problems, more turmoil and that would present opportunities eventually.
Do you think there is far more downside at present in terms of gold and primary industrial metals?
I think the primary industrial metals — the zinc, the tin and lead — are making their bottoms. I am more optimistic about them than on gold and silver at this point. I own gold and silver. I haven’t bought any for 5-6 years. But I am waiting for an opportunity to buy. I expect gold and silver will be weaker than the others going forward only because the industrial metals have been so weak already.
Talking about the Fed rate hike cycle, when do you think the real worry start for emerging markets in terms of big outflows?
Not for a while. The world is going to have problems. In America that used to be the main market, it has not got a serious stock market set back in the past 6-7 years. That is very unusual. Normally, market corrects 15-20 per cent every year or so. We haven’t had corrections like that because of the artificial money printing by the central bank. We are going to have a big problem next time we have a setback and it is coming in 2016-2017.
Before the end of 2015, you said that China was a victim and it was not the only one causing most of the global tremors. But 2016 hasn’t started on a very good note, especially in China. Have you changed your view?
No, we all are all a victim. China is a victim too. The main culprit, if you have to have a culprit, is the US government — its Washington DC. Both the government and the central bank spending staggering amount of money and running big debt. We all are victim now, including China. But they say that China is the cause of this is not correct. If you want to find a culprit and really there is, we all are culprits because what have happened is China’s run up debt and even India’s run up debt. We all are culprits going forward and victims.
If commodities are low and the dollar remains strong, how you do think Indians are placed in terms of the emerging markets? How does the emerging market flows panning out?
We all could be moving our investment markets everywhere whether it is stocks or bonds whatever happens because of this craziness that Washington has been doing. You know the way the world is supposed to work — your parents taught you to save and invest for your future. For all the people who did that, who saved and invested for the future, are getting wiped out because they are getting zero interest or getting no return on their money, which is damaging pension plans, trust, insurance companies.
It’s destroying all the people who save. So we are going to have a big mess as debt has gone up and savings have gone down.
With the Budget up, how are the macros panning out in India? What is your view on the government’s fiscal consolidation path? What is needed most by the government going forward?
Well I love India. But what your government needs to do is stop running up debt. I promise you, when the next Budget comes out it’s not going to show a reduction in debt. The deficits are going to still be there and the debts are going to go high. The other thing that they need to do is to open up the currency. What is there to have India a blocked currency?
This is 2016. This is not 1916. India is a strong and prosperous country. Let your currency be open and free. And if your markets and currency is open and free, chances are more people like me will be investing there.
RBI Governor Raghuram Rajan said he is not concerned about the valuation of the currency and doesn’t really foresee the central bank really stepping in to try and change the valuation. How are you viewing the rupee given sharp fall we have seen in recent past?
I hope that the government, central bank and everybody in India let the currency do what the market wants it to do. This is 2016. Why is India still worrying about things like that? Fifty years ago, the politicians thought they had to. But this is not difficult for politician. Narendra Modi claims that he understands economics and understands how the world works. Stop interfering with the currency. Let the market do its work even if it goes down a lot for a while. Even if it goes down for a while people like me will come rushing in to buy more.