Brian Friedman: The spotlight may come to India as it never has before: Brian Friedman

Brian Friedman, President of Jefferies Financial Group, one of Wall Street’s fastest growing firms, is no stranger to India. He has visited the country several times over the past two decades. But this time Friedman is more optimistic than ever. Speaking to Nishanth Vasudevan during his recent visit to Mumbai last week, Friedman discussed a range of issues including US interest rates, China and India. Edited excerpts:

When do you expect the US Federal Reserve to stop raising interest rates?

Our current expectation is that rate hikes will slow and dissipate by early next year. The Fed will likely find a point over the next year where pausing and evaluating is the right strategy. The Fed has already made a very strong statement to markets and companies and will likely have an impact in 2023. Ultimately, the Fed had to act to curb inflation. They have done so decisively and the effects will be felt in 2023 and into 2024.

So do you expect a US recession in 2023 and 2024?

I’m not going to venture a very specific guess, but rather suggest that some depth of recession is likely. How deep, how long? I personally will not make a suggestion. But is it likely? Yes. US internal forces are a tight labor market that has caused wage inflation and a tight housing supply that has led to home price inflation. Both are effectively the targets of the Fed’s rate hikes. It’s supposed to cool down a bit next year. And when it cools down, the Fed will hit its target, although it could push us into a recession.

Are Fixed Income Investments More Attractive Than Equities Right Now?

Deciding where fixed income ranks versus stocks is a dynamic process. But it’s fair to say that with the advent of higher interest rates, bonds are more attractive than they have been in a long time. Up to this point, duration has been very risky. This risk has actually existed for more than 10 years. Fixed income securities should be more attractive in the near to mid-term than they have been in the near to mid-term as they can again offer a real yield. But over longer periods of time, stocks should still generally outperform bonds because of their risk rewards.

Where do you position India in your list of emerging countries?

Being here for the first time post-Covid, I have renewed expectations that India will potentially gain traction and become more attractive to global investors and global businesspeople. As the light moves from some other emerging markets, I think there’s a big chance it will find India. I’ve told our team here that the limelight could come to India like never before. You have historically divided the light, but perhaps India is now getting a purer and brighter and broader light. And that’s great.

You have visited India for the past two decades. What makes you particularly optimistic about India this time?

There seems to be more consistency, confidence and clarity from government. Everything from the infrastructure to the quality, sophistication and dynamism of the industry is better. And our team here sometimes laughs when I point out that the drive from the airport just keeps getting better. This is a big deal! When you have a better ride, you want to come back sooner. And I say it jokingly. But it is true. And so I think the emphasis is increasingly in the right place; it has proven itself. You now have a unicorn class of companies. You have families that have reinvested and gotten bigger and built more businesses. They have many companies that have grown from SMEs to serious and large companies compared to the first time I came here.

There is a segment of global investors who believe that China is becoming increasingly uninvestable. In your conversations with global investors, do you actually see a big shift in allocations from China to India?

For me, the word non-investable goes with a phrase that I often use in our team: never say never. Thinking that anything is categorical usually comes back to bite us. That being said, there is no question that recent events in China have caused investors and companies to look up and, in some cases, to pause and re-examine. We’re probably still early in this process, as people don’t necessarily jump to deep conclusions quickly. There may be direction, but I think conclusions aren’t necessarily educated or necessarily firm. If you take a step back, India was already rising in people’s vision and getting a bigger share of attention. Could this further support a relative chance? Possibly. But I think it’s too early to make a strong statement on that again.

The market was nervous about the health of Credit Suisse. Are there similarities to Lehman Brothers in 2008?

The entire financial system and financial markets are incredibly stronger and more stable than ever. And right now I don’t see anything remotely pointing to the 2008 period. Individual institutions are going through changes. I’m not sure if that indicates financial instability. You’ve seen other banks change strategy, divest businesses and exit underperformers. This is business development. So I will not comment on a single institution. But at any time there are institutions in transition. Overall, I think financial institutions are in a strong position.

FAANG stocks and new age companies have taken a beating. Is the best over there?

I would separate business prospects from stock prices. Speaking of FAANG, don’t forget Microsoft. These are significant companies that they must earn and evolve every day. The ratings got very aggressive, and that happens from time to time. There has been a re-evaluation. I don’t think people should fixate on valuations or risk taking. What matters to society is not stock prices, but the availability of capital. Brian Friedman: The spotlight may come to India as it never has before: Brian Friedman

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