Julius Baer: Kevin Warsh No Hawk as US AI Earnings Growth Limits India's FII Appeal

The Quick Take

• Julius Baer's Asia research head says Kevin Warsh is not a hawk and Fed rate hikes look unlikely in the current environment
• Strong US earnings growth driven by AI investments continues to attract global capital, limiting India's appeal to international investors
• Julius Baer projects crude oil falling to $60 per barrel by next year, with mixed implications for Indian energy sector stocks

Bank Julius Baer's Head of Research for Asia, Mark Matthews, has characterised Federal Reserve Chair Kevin Warsh as not a hawk, dismissing market concerns that new Fed leadership would pivot toward rate hikes. Matthews instead argues that AI-driven earnings growth in the US is the dominant capital allocation story, as sustained outperformance of US corporate earnings—particularly among technology companies investing heavily in artificial intelligence infrastructure—continues to attract global institutional capital and limits the relative appeal of emerging markets including India for international investors seeking maximum risk-adjusted returns.

The Julius Baer call on crude oil prices declining to $60 per barrel by next year carries significant cross-asset implications for India. A sustained move to $60 Brent would benefit crude-importing India—reducing the current account deficit and easing INR pressure—while materially hurting energy sector equities and national oil companies globally. For Indian upstream producers like ONGC and Oil India, a $60 oil scenario would significantly compress earnings. However, Indian refiners such as HPCL, BPCL, and Reliance Industries would see refining margins improve as the spread between crude input and refined product prices typically widens during supply-driven oil price declines.

The critical indicator for India's attractiveness to international capital is the relative earnings growth differential between US and Indian markets. If US AI-driven earnings growth continues accelerating at current rates, the FII underweight position in India is likely to persist regardless of macroeconomic stability. Watch monthly FII flow data into Indian equity markets as the clearest real-time signal of whether global capital allocation is shifting back toward emerging markets. The Fed's next dot-plot release will confirm or deny the Julius Baer benign rate outlook—any upside surprise toward rate hikes would further compress global risk appetite for emerging market equities.

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