In­dia’s Ahead Among EMs in Recog­nis­ing Bad Loans

The Economic Times - - Money -

The out­look for emerg­ing mar­kets, in­clud­ing In­dia, doesn’t look very good in the next 6-12 months against a back­drop of tepid global growth, said Paul Da­nis, chief strate­gist at Canada-based BCA Re­search, whose anal­y­sis is tracked closely by global fund man­agers. In an in­ter­view to Sanam Mir­chan­dani on the side­lines of a Birla SunLife Mu­tual Fund event, Da­nis said he ex­pects China to out­per­form In­dia as well as emerg­ing mar­kets this year as it is trad­ing at at­trac­tive val­u­a­tions. Edited ex­cerpts:

What is your out­look on In­dia and how do you see it rel­a­tive to other emerg­ing mar­kets? In ab­so­lute terms, we don’t ex­pect much up­side in In­dian eq­ui­ties in the next 6-12 months be­cause of our cau­tious stance on emerg­ing mar­kets. We think it is one of the great spots within the emerg­ing mar­ket uni­verse be­cause the country is pur­su­ing pro-growth struc­tural re­forms. There is a non­per­form­ing loans prob­lem with pub­lic sec­tor banks but In­dia is a lot ahead of other emerg­ing mar­kets in terms of ac­knowl­edg­ing those non­per­form­ing loan is­sues. Your con­cerns about In­dia? We are cau­tious on In­dia also be­cause of the val­u­a­tion met­rics, which are higher com­pared to rest of the emerg­ing world and the cor­po­rate profit growth has been rel­a­tively muted. We don’t see much in terms of credit cy­cle un­fold­ing in In­dia and so we are rel­a­tively cau­tious on the cor­po­rate profit out­look. We do like In­dia from an equity per­spec­tive within the emerg­ing mar­ket uni­verse and on a long-term hori­zon be­cause of its very at­trac­tive growth pro­file. It is more be­cause of our cau­tious stance on the emerg­ing mar­kets over the next 6-12 months that is lim­it­ing what we would ex­pect from In­dian eq­ui­ties over the same time hori­zon.


Which would be your top picks in the emerg­ing mar­kets space? In­dia and China would be among the top two cer­tainly. I would put China slightly ahead of In­dia be­cause the for­mer is trad­ing at a deep val­u­a­tion met­rics. We are see­ing pretty sub­stan­tial mon­e­tary and fis­cal pol­icy stim­u­lus com­ing out of China, which will re­sult in Chi­nese eq­ui­ties be­ing a rel­a­tively strong per­former in the emerg­ing mar­ket world. Our house view is pos­i­tive on China. If the non-per­form­ing loan is­sues are not ad­dressed, there will be some fi­nan­cial mar­ket volatil­ity. How­ever, the at­trac­tive val­u­a­tions com­bined with the cycli­cal re­fla­tion­ary push by the au­thor­i­ties are likely to sup­port Chi­nese eq­ui­ties over the next few months.

What is your as­sess­ment of the cor­po­rate earn­ings cy­cle in In­dia? There was a lot of op­ti­mism around re­form when (Prime Min­is­ter Naren­dra) Modi came to power, but be­cause there were such high ex­pec­ta­tions, there is bound to be The cen­tral banks’ easy money poli­cies have done some good by boost­ing growth but mar­kets are at a point where fur­ther QE or fur­ther move into neg­a­tive in­ter­est rate ter­ri­tory aren’t go­ing to do much good. Cen­tral banks should start look­ing for other mea­sures to sup­port growth and in­fla­tion­ary out­look. That is why we are view­ing ‘he­li­copter drop’ op­tions as the next big thing.

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