Passive strategy has now controlled almost 60% of US equity assets while quant funds control another 20% and that is a staggering 80% of total combined that is being controlled by passive strategies, says Shiv Sehgal, Deputy CEO, Capital Markets, Edelweiss.
What kind of signals are you getting as far as global markets are concerned?
The Fed and the US markets are currently the globally leading indicators. Whatever is transpiring in the world over depends a great deal on what is happening in Wall Street. There is higher correlation not only to developed markets but the emerging markets as well and in that space the Dalal Street is no exception.
If you put aside the dichotomy that exists between Wall Street and Main Street in most leading economies and emerging markets, one can clearly understand the leading indicator and the leading policy response to the level of monetary intervention. No one could have imagined that at the start of this year, with interest rates almost near zero in most of the developed world and further promises to keep going with such aggressive intervention for years to come, the bottom line is money supply growth.
At the Fed website alone, money supply growth is tracking at almost 29% year on year and it is at a 60-year high. Since the post World War II era, we have never seen money supply grow to such an exceptional levels and more importantly the signals from the Fed are very clear. Jeremy Powell in his speech announced that the Fed had unanimously adjusted slightly higher to a more flexible form of average inflation targeting. Basically, the Fed committee is seeking to achieve inflation that averages 2% over time. The 2% inflation is far stretched. It is currently averaging around 60 bps in the US. That means aning