‘Long-term Money That Left In­dia Isn’t Back Yet’

The Economic Times - - Markets & Finance -

The new govern­ment should not worry too much about the stock mar­ket; it should fo­cus on struc­tural re­forms, said Dixit Joshi, man­ag­ing di­rec­tor and head, eq­ui­ties, Asia Pa­cific, Deutsche Bank. In an in­ter­view with Nis­hanth Va­sude­van, Hong Kong-based Joshi said there could be some con­sol­i­da­tion now and that could be a good op­por­tu­nity of in­vestors to pur­chase. Edited ex­cerpts: There is a camp which be­lieves that the mar­ket is ex­pect­ing too much from the new govern­ment in the near-term given that some of the eco­nomic is­sues like in­fla­tion and in­dus­trial slow­down are deep-rooted. What are your thoughts? Typ­i­cally an­a­lysts tend to be con­ser­va­tive about the im­pact of big changes and we be­lieve it takes around 8 quar­ters be­fore you typ­i­cally start to see re­sults. In­vestors need to be pa­tient and take the longer term view. The new govern­ment should not worry too much about the stock mar­ket; the fo­cus should be on struc­tural re­forms that are so nec­es­sary. These would be fo­cused on the fac­tors of pro­duc­tion i.e. land and labour. In ad­di­tion, they also need to pro­vide a road map for ush­er­ing GST. Other re­forms should be faster clear­ances of stalled projects and ac­cel­er­ated de-reg­u­la­tion of diesel prices on which na­tional con­sen­sus has been built. In your in­ter­ac­tions with for­eign in­vestors, what is the sense that you are get­ting about In­dia? Are they will­ing to in­crease their In­dia weightage vis-à-vis other emerg­ing mar­kets? Till re­cently, In­dia was not on the radar of for­eign in­vestors as there were is­sues around pol­icy clar­ity and lack of capex. There were more com­pelling op­por­tu­ni­ties else­where. We be­lieve that’s com­pletely re­versed now. We have seen re­ally strong FII flows come into In­dia YTD (year to date) of over $7.7 bil­lion and this year prom­ises to be a strong one. If the govern­ment de­liv­ers on the prom­ises it made dur­ing the elec­tions, we will have strong flows over the next two-three years.

But, have we seen a lot of long term money that left In­dia ac­tu­ally come back? No. That money typ­i­cally moves in more slowly. These are funds that are driven by as­set al­lo­ca­tion, and over time will start com­ing into In­dia. Again, hav­ing a medium term per­spec­tive is im­por­tant as mar­kets can un­der­shoot and over­shoot, and of­ten they do. Are val­u­a­tions look­ing ex­pen­sive af­ter the re­cent rally when you com­pare them his­tor­i­cally and with other emerg­ing mar­kets? In­dia has had a good rally; the mar­kets are up 21% in dol­lar terms. So, is it ex­pen­sive ver­sus three months ago or six months ago when you bought it? Sen­sex is cur­rently trad­ing at 15.5 times one year for­ward earn­ings, which is in line with the past 5-year aver­age. That is not ex­pen­sive for a mar­ket which is on the cusp of a change. Ob­vi­ously, in­vestors with a shorter term time hori­zon, will book prof­its. As growth re­vives, we will see longer-term flows back. Is the mar­ket fac­tor­ing in all of the Modi div­i­dend? Not yet. But that’s a strate­gic call, and a medium term call. Not a tac­ti­cal call. There may be some con­sol­i­da­tion given the strong per­for­mance which is healthy and will al­low en­try points for those who haven’t par­tic­i­pated. Are mar­kets down­play­ing the im­pact of QE roll­back and pos­si­ble in­ter­est rate in­creases in the US next year? Do you ex­pect a slow­down in FII in­flows into emerg­ing mar­kets in­clud­ing In­dia? A year ago In­dia was vul­ner­a­ble to the Fed ta­per. That whole dy­namic has changed. On ac­count of proac­tive mea­sures by the RBI gover­nor, additional re­serves have flowed in, which eased the cap­i­tal ac­count sit­u­a­tion. We went from a po­si­tion of vul­ner­a­bil­ity to a po­si­tion of strength which will help us weather any rise in US rates. In­dia's ex­ter­nal bal­ances no longer look as frag­ile as they did in 2013. If any­thing, higher US dol­lar rates will help keep the ru­pee com­pet­i­tive. In­dian mar­kets will be driven much more by what in­vestors see in terms of real ac­tion com­ing out of New Delhi. There has been a lot of an­tic­i­pa­tion around what Modi will do. There’s been a lot of talk around what struc­tural re­forms are re­quired. Now people will want to see ac­tual de­liv­ery and ac­tual ac­tions come through. Which are the sec­tors and themes that you like? We like in­fra, en­ergy, ma­te­ri­als and bank­ing sec­tors.

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