‘In­dia is Less Ex­posed to US Pro­tec­tion­ist Poli­cies’

The Economic Times - - Money -

The out­look for In­dia is favourable given that it is less ex­posed to pro­tec­tion­ist poli­cies in the US and the im­pact from de­mon­eti­sa­tion is fad­ing, said Gary Green­berg, head of emerg­ing mar­kets at the Lon­don-based Her­mes In­vest­ment Man­age­ment, which has £28.6 bil­lion of as­sets un­der man­age­ment. In an in­ter­view to Sanam Mir­chan­dani, dur­ing his re­cent visit to Mum­bai, Green­berg said he favours those com­pa­nies in In­dia which are fo­cused on devel­op­ment and use of tech­nol­ogy. Edited ex­cerpts:

What is your as­sess­ment of the first four weeks of the Trump pres­i­dency? Al­though Trump has fol­lowed upon a lot of his cam­paign prom­ises more than any­body thought, his fol­lowup has been through ex­ec­u­tive or­ders that have been hastily con­structed and in some cases he has had to re­trace his steps. Now that he is sub­ject to the con­straints of the US con­sti­tu­tion, whether he will be able to im­ple­ment the kind of rad­i­cal changes that he promised in the cam­paign is not clear. His be­hav­iour so far has been er­ratic and would also lead to con­cerns for EMs and other mar­kets.

Is pro­tec­tion­ism the new nor­mal? We are see­ing a re­treat. We had 30-odd years of re­turns to cap­i­tal out­pac­ing re­turns to labour and there is a back­lash now which could last for a good while where labour at­tempts to equalise. Hav­ing said that, the pop­ulists usu­ally cam­paign on the left and gov­ern from the right. It is un­likely that labour will ben­e­fit greatly and that cap­i­tal will suf­fer much. EMs have held up quite well since Trump won. What are the risks at this point? Pro­tec­tion­ism is one risk for EMs. Fur­ther swing to the right in Euro­pean elec­tions which would im­ply a break-up of the euro and is an­other risk that could un­set­tle the mar­kets. EMs have a cycli­cal tail­wind, which is help­ing them. If there are no ma­jor pol­icy blun­ders, whether it be in the US or Europe, the out­look is de­cent for this year for EMs.

What is your out­look for the In­dian mar­ket within the EM space? We are pos­i­tive on In­dia. Com­pared to other coun­tries, In­dia’s prob­lems seem to be less se­vere than those at other places. In­dia is less ex­posed to pro­tec­tion­ist poli­cies of the US than other coun­tries. The im­pact from de­mon­eti­sa­tion is be­gin­ning to fade. The im­ple­men­ta­tion of GST (Goods and Ser­vices Tax) is the next big event apart from the state elec­tions.

Some econ­o­mists have cut growth fore­cast for In­dia af­ter de­mon­eti­sa­tion. What is your take? Both de­mon­eti­sa­tion and GST could have short-term neg­a­tive im­pact on eco­nomic growth, but in the long term, any­thing which makes the econ­omy more for­mal is good for growth and stan­dards of liv­ing. The take­away I get from com­pa­nies is that it is a slower world, and In­dia is also slow. But ul­ti­mately In­dia has a lot of driv­ers which are on track. As the bank­ing re­cov­er­ies are im­ple­mented and ex­e­cuted, lit­tle by lit­tle the econ­omy should see growth.


How com­fort­able are you with In­dian val­u­a­tions? In­dian mar­kets are near life­time highs, but earn­ings are grow­ing as well. The val­u­a­tion is more or less in line with its long-term av­er­age and there­fore isn’t par­tic­u­larly ex­pen­sive, nor is it par­tic­u­larly cheap.

What are the in­vest­ment themes you are look­ing at in In­dia? The devel­op­ment and use of tech­nol­ogy is a pow­er­ful, long-term theme. We like some of the com­pa­nies in In­dia that are both de­vel­op­ing and us­ing tech­nol­ogy. For ex­am­ple, Bharat Forge is us­ing ad­vanced man­u­fac­tur­ing tech­niques. Banks, such as ICICI Bank and HDFC Bank, are us­ing tech­nol­ogy to be­come more stream­lined and reach more peo­ple at lower costs. We have a play on in­fra­struc­ture through Power Grid which has good prospects and is well-run. We have ex­po­sure to Mother­son Sumi which is en­joy­ing a cycli­cal re­cov­ery and con­tin­u­a­tion of strong gains in mar­ket share glob­ally. We have a po­si­tion in Hero Mo­tor­cy­cles, which is more of a cycli­cal play. It was hit by de­mon­eti­sa­tion, but should re­cover fully in 2017.

What is your take on RBI’s de­ci­sion to move pol­icy stance to neu­tral? It sur­prised the mar­ket a bit but it bol­stered their (RBI’s) cred­i­bil­ity quite a bit. It seems like a rea­son­able de­ci­sion.

Some also say that the US mar­kets have turned ex­pen­sive af­ter the Trump rally and that would ben­e­fit EMs... They are ex­pen­sive but if tax cuts and repa­tri­a­tion of tril­lion-plus dol­lars be­come a re­al­ity, which will very likely go into buy­backs, the mar­kets can even get a lit­tle more ex­pen­sive. It is more of a liq­uid­ity and pol­icy-led rally rather than real de­mand. Noth­ing has re­ally changed ex­cept the hope that he will wave a magic wand and make things bet­ter, which un­for­tu­nately is prob­a­bly not go­ing to hap­pen.

Do you see any risk from China, which has a huge debt? They don’t seem to be go­ing in the right di­rec­tion in the long term. They are grow­ing through adding more debt, but I don’t see the Chi­nese econ­omy as be­ing at risk of blow­ing up. They have a cur­rent ac­count sur­plus, a lot of for­eign ex­change re­serves, and they own the banks.

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