In­dia Can Give Re­turns of up to 30% This Year

The Economic Times - - Money -

In­dian mar­kets could re­turn 30% in 2016, said Brian Ja­cob­sen, chief port­fo­lio strate­gist at Wells Fargo Funds Man­age­ment. In an in­ter­view to Sanam Mir­chan­dani, Ja­cob­sen said In­dia is his favourite mar­ket from a val­u­a­tion per­spec­tive and also be­cause the down­side from cur­rent lev­els is limited. Edited ex­cerpts:

Where does In­dia stand in your emerg­ing mar­kets (EMs) list? The two coun­tries that stand out as very good in­vest­ment pos­si­bil­i­ties are Greece and In­dia. From a val­u­a­tion per­spec­tive, Greece is very cheap but they will con­tinue to have is­sues as they ap­proach their June and July dead­line for mak­ing cer­tain debt re­pay­ments. In­dia is my favourite from a val­u­a­tion per­spec­tive and from a mar­gin of safety. In In­dia, the down­side is a lot more limited as the fun­da­men­tals are very sup­port­ive. Sen­ti­ment is be­gin­ning to change for emerg­ing mar­kets in gen­eral and peo­ple are go­ing to be look­ing at In­dia as a bell­wether for how emerg­ing mar­kets will be do­ing.

What kind of re­turns do you ex­pect from In­dia in 2016? We will prob­a­bly see about 30% re­turns. A lot of it will de­pend upon fund flows from de­vel­oped mar­ket in­vestors. For that to hap­pen, com­mod­ity prices have to sta­bilise and the Fed­eral Re­serve should not be too ag­gres­sive and hasty in hik­ing rates. If th­ese fac­tors pan out, we could see a sig­nif­i­cant re-pric­ing of In­dian eq­ui­ties. For EMs as a whole, we ex­pect about 20% re­turns.

What are the key trig­gers for In­dian mar­kets go­ing ahead? We have al­ready made it through the Bud­get process and a lot of peo­ple were en­cour­aged by the fact that the deficit wasn’t too large. The re­gional elec­tions would be an im­por­tant fac­tor to watch. I would like to see the BJP get­ting a bit more sup­port to help un­der­score that the pub­lic is go­ing to en­dorse PM Naren­dra Modi’s re­form agenda such as Make in In­dia. Also, if there is a bet­ter mon­soon this year, it should be good for growth.


What themes do you like In In­dia? One area that I like is in­fras­truc­ture. The Make in In­dia re­form agenda will in­volve im­prov­ing roads, bridges, san­i­ta­tion and elec­tri­cal sys­tems and I would look at sec­tors that are likely to profit from the projects. An­other area I like is sec­tors cater­ing to the ru­ral com­mu­nity. There is a big di­vide in in­comes and wealth be­tween ur­ban and ru­ral pop­u­la­tion. The ru­ral pop­u­la­tion rep­re­sents vast, un­tapped po­ten­tial for growth.

Do you ex­pect flows into EMs to be stable go­ing for­ward? In April, one of the things that has hurt global mar­kets is the yen. There are con­cerns about whether the slow­down in Ja­pan will spin out of con­trol. The flows are go­ing to con­tinue to be volatile dur­ing April, and pos­si­bly May. The trend could turn quickly if we see the Fed de­cid­ing to not hike and the Bank of Ja­pan does more on the mon­e­tary stim­u­lus front.

Do you be­lieve head­winds from China are over? China is turn­ing into a tail­wind for the mar­kets as op­posed to a head­wind. At the be­gin­ning of the G20 meet­ing, the Gov­er­nor of the Peo­ple’s Bank of China started com­mu­ni­cat­ing more about what they were try­ing to ac­com­plish with their mon­e­tary pol­icy and that was a very pos­i­tive step. The mon­e­tary and fis­cal stim­u­lus that they have im­ple­mented is be­gin- ning to bear fruit and China could be­come a sup­port to mar­ket as op­posed to a over­hang on the mar­ket.

What do you make of the US Fed’s com­men­tary on rates? The FOMC min­utes showed that there is a di­vide within the Fed but the ma­jor­ity block led by chair is the one that is ul­ti­mately go­ing to have the say about when they hike again. It is not a di­vide that will push the Fed to hike sooner than what Janet Yellen would oth­er­wise like.

When will US in­crease rates next? We could see a hike in June. The head­winds that were very well enu­mer­ated and spelled out in the FOMC min­utes could abate or lessen by the time we get to the June meet­ing. A key con­sid­er­a­tion could be whether or not the dol­lar con­tin­ues to strengthen and if oil sta­bilises. If oil stays in that $35 to $45 per bar­rel­range, the Fed would get a lit­tle bit more com­fort­able hik­ing rates.

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