It's important to think about human impact; it's not only about buying and selling bonds: Franklin Templeton's Sonal Desai

Contrarian bets

Market movements can be unpredictable, and volatility forces investors to make a crucial decision: Should strategies rely on market timing, or should they be based on deep conviction with a medium-term horizon?

“I tend to be of the second kind,” says Desai. “We use our macroeconomic path and bottom-up analysis to find true value.”

Desai is known to hold bold and contrarian views with high conviction. As the global economy reeled under the pandemic in 2020, governments around the world unleashed a deluge of fiscal stimuli to stave off economic collapse. While many experts believed the resulting inflation would be temporary, driven by short-term supply shocks, Desai saw a different story unfolding in the numbers.

She was sceptical of the US Federal Reserve’s stance on inflation being temporary and the expectation of imminent rate cuts. She argued that the massive fiscal stimulus would lead to more persistent inflationary pressures. She said the inflation was not due to temporary supply shocks but was more structural in nature, and therefore would persist and that rates would not be cut as soon as the market anticipated.

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From Delhi to US

Born in Nadiad (Gujarat), Desai, who grew up in New Delhi, says her childhood years were the most formative years of her life. “It was a childhood that I remember with a great deal of happiness,” says Desai. “My father, in particular, pushed me very hard in terms of schooling. He was extremely progressive, especially considering the times,” she says, adding that she and her two brothers were expected to work hard in school, with no difference between the genders.

“My father was both an inspiration and a driving force. He still is to this day. My mother is the heart and soul of the family,” she adds. Desai completed her graduation in economics from Lady Shri Ram College in 1985. She holds a PhD in economics from Northwestern University, US. After a brief career as an assistant professor of economics at the University of Pittsburgh, she worked at IMF for six years, focusing on emerging markets from Africa to Eastern Europe.

She shifted to the private financial sector working on the sell-side and eventually joined a hedge fund in London. Desai worked as a director and senior economist for Dresdner Kleinwort Wasserstein and then at Thames River Capital, before joining Franklin Templeton.

Desai also has a creative leaning—her love for baking led her to pursue a course in patisserie at Le Cordon Bleu in London. She also has a deep love for architecture and would have potentially made it a career if she had not pursued economics.

Views on US tariff implications

In her recent ‘Mind Over Matter’ column, Desai pointed out that the recent US tariffs had set the stage for potential bilateral negotiations, so the uncertainty is not over. “But it has at least put the worst-case scenario on the table.”

She estimates in the column that there will be an up to 1.5 percentage points temporary impact on inflation. She expects lower US growth this year, and upside risks to inflation. The administration’s focus is expected to shift towards tax cuts and deregulation. “Assuming concrete progress on these areas, I think the balance of risks will still limit the Fed to at the most one more rate cut this year,” she adds.