‘US politics will decide the direction in much of the world’s markets’

Investors from abroad are acknowledging India’s shift towards structural reforms and macro prudence, says SHIV GUPTA, founder and chief executive officer, Sanctum Wealth Management. In an interview with Ashley Coutinho, he says emerging markets' valuation

The market has rallied 17 per cent in the past year, despite events such as Brexit, Donald Trump’s surprise win and demonetisation. Is there a correction round the corner? The Indian market has taken these events in its stride, a testament to its overall attractiveness and to the idea that we are in a secular bull run. Looking ahead, the course of US politics is likely to determine the direction of both fiscal and monetary policy, and have a knock-on effect on much of the world’s markets. We believe the market has been underestimating the difficulty Trump would have in rolling out his initiatives and is overly sanguine about prospects for a large fiscal stimulus. Further, we expect the benefits to become apparent with a considerable lag. The road is more uphill than investors are anticipating. Back home, in the near term, the market will be driven by domestic earnings, rollout of GST (the goods and services tax), government spending and reforms, and rate transmission to businesses and consumers. Foreign portfolio investors (FPIs) have come back to the market in 2017, after a heavy bout of selling in the last quarter of 2016. How do you see FPIs allocating money to Indian markets in 2017? The exit by FPIs was a knee-jerk reaction after the Trump victory in America. From a long-term perspective, FIIs (foreign institutional investors) acknowledge India’s shift from earlier decades of macro policy imprudence and lumbering political intent to a more growth-led approach, predicted on structural reforms and macro prudence. This makes India a more attractive investment case. While it’s difficult to predict the extent of flows, incremental allocation will be based on confidence in the continued progress of growth-enabling reforms and global cues, particularly from the US. How do you see the year for emerging markets (EMs)? Emerging markets, while positive, have massively underperformed developed markets over several years, driven by the US Fed (their central bank) taking interest rates to effectively zero on the short end, allowing US valuations to expand to stratospheric levels. While the valuations appear rich almost anywhere, adjusted for lower interest rates, EMs’ valuations are not extreme, and the structural opportunities driven by demographics alone in countries like India, Indonesia and Philippines are very attractive. Which sectors are you overweight and underweight on? We remain bullish on select areas within financials, automobiles, consumer discretionary and energy. In terms of infrastructure, we prefer upstream providers of infra build-out, as well as players that are positioned to benefit from recoveries in affordable housing and consumption demand. We are underweight on telecom and information technology.