What are some of your takeaways from the Budget this time in terms of an indicator of reforms. From a market standpoint, do you feel that it was in line with expectations or would you have liked to see more?
It is a good sign. I believe that the budget emphasised very nicely the importance of the small and medium sized industry and giving them tax breaks and encouraging innovation and entrepreneurship. That is very good. Also, of course, the fact that they are going to be giving more to the farmers and rural areas is good as is the emphasis on infrastructure.
What I would like to see of course is implementation of privatisation. One of the interesting points of the budget is that the Finance Minister mentioned that they wanted to have more listing of state owned enterprises and the very interesting part of that was the recognition that ETFs or exchange-traded funds and index funds meant that a lot of flows were coming in, driven by the industries and therefore it was important for India to have a heavier weighting in the various overseas indices. It shows a high degree of realism which I think is important.
What about the impact of the government’s move in overseas borrowing on the sovereign front. Do you feel that this will lead to lower cost of capital, lower rates and more foreign flows into India? Do you see that happening?
Yes I think that it is a very good point in this budget. They now want to start offering fixed income instruments overseas and I believe that will push up the government expenditures in the budget but also more importantly will put India on the map. And it of course should lead to low interest rates. Investors overseas are hungry for yields with interest rates in America going down and therefore the timing is very good.
Absolutely, given the glide path that we have seen around the world. Just to add to that, there were some talk about the short-term capital gains tax in line with the LTCG. How may that deter foreign investors from really getting excited about pumping money into India? Do you feel anything on the taxation front would suggest that India is rich as a valuation play currently compared to what is happening in the world?
Well when we talk about India we talk about growth. Currently, in historical perspective, they look expensive but if you look at the growth of the economy in growth companies, then it is pretty cheap. As regards taxes, I do not think we have been through this before regarding capital gains to foreign investors as long as this is efficient. Since it involves lots of bureaucracy, that should not be a big problem. I do not think the government will want to deter foreign investors with a very big tax.
The issuances of sovereign bonds by India has been a longstanding demand from the foreign investors. Do you think the fact that a step was taken in this front can be viewed very positively and what sort of signs are you getting for the bond markets?
It is a very good move on the part of the government because India should be recognised in international capital markets and this very issue of sovereign bonds will go a long way towards increasing the credibility of the country in general and increase the credibility of the capital market. So it is a very good move. Also in the budget, the merging of the overseas Indian and the regular foreign investors groups is also a very good move. That is realistic and it will lead to more investments.
There was a lot of focus on using monetary measures to ease liquidity and provide stimulus going forward. Do you feel that we will actually see the effect of this on the ground and if so, how long would you give it? We have not seen it on the fiscal side and from that, there was consensus among foreign investors or market participants that they would have been happy to see some softening on the fiscal side to boost growth.
My main concern regarding the budget is that the government was a little bit too careful. I do not think a 2% or 3% debt to GDP level is appropriate for India. They should be up at 5%. As you know, the US has 5% fiscal deficit as a percentage of GDP and that is where India should be and India should not be afraid of that because it is a fast growing country and infrastructure is needed. You have to really get that government spending in the right place and not be worried about the debt to GDP levels.
The buzz word prior to the Budget was hinging largely on the consumption slowdown and that has been evident where a lot of these stocks have been performing. Given the fact that there was no big bang reform on the consumption front, for autos and consumers, is there now an opportunity to buy or are we likely to see the slowdown remain prolonged?
I do not think the slowdown remain prolonged. The consumer market will come back. Yes there has been quite a lot of concern about that but given the growth rates they were looking at in India and now with the regularisation of debt in the banks with the banks being funded more, that should be a big relief. Of course, the fact that the government is putting money into the rural areas is helping consumption as well.
I am not that worried about it and we still like consumer-oriented stocks. But more importantly we like infrastructure related stocks and companies that have the means to supply infrastructure materials and products.
You have touched upon infrastructure a couple of times. I am intrigued by your bullishness. Given the fact that we are still wondering whether the private sector will manage to go out there and be able to execute at the moment since things still continue to be a little tight. Where do you see that pick up coming in from? We have talked about the consumption side, but even on the investment side where do you see that pick up?
Well that has to come as a result and again mentioned in the budget is public-private partnerships in infrastructure arena. The government cannot do this all by themselves both in terms of the commissioning of this work but also to get financing. So it is very important that they push ahead with the public-private partnerships in every direction whether it be subways, airports, roads. I noticed in the budget, there was a very good move for water and inland transport. It is very, very important. There can be tremendous opportunities in that direction and thankfully the Budget does mention it but the key will be implementation to move ahead on that front.
The Finance Minister has shown intent of sorting out the NBFC problem and even set aside Rs 70,000 crore for banks’ recapitalisation. There has been a lot of steps for the credit squeeze within the NBFC space. Has that been enough? How could the market take to these stocks?
Recapitalisation of banks is a very good step in the right direction. NBFCs will be given more extension and of course there is going to be consolidation as a result of the recent problems in that sector and that should augur well. We ourselves are invested in that sector and we believe that there is some very good firms that will do quite well.
Currently we have got a huge question mark around what the Fed will probably do next and we are waiting for Powell’s commentary. There are huge expectations that we will see RBI cut rates and possibly more aggressively than earlier anticipated. How do you see capital moving around the world market. I want a bird’s eye picture from you.
Well of course with the Fed lowering rates, fixed income investors are going to be searching for years and that is why with timing of a bond issues by the Indian government is going to be very good. But going forward, the people are going to be moving more and more towards emerging markets equities simply because the opportunities for growth still remain and since the US market already has been at its high point, people always look for diversification.
Talking to clients around the world, we find that is very heavily weighted and realise that periods of risk without having some international exposure and politically emerging markets exposure. Of course, India stands right at the top of the heap in terms of opportunities for growth. The fact that the budget mentions the need for privatisation of state-owned enterprises and more equity going into the Indian markets is very good and will encourage more flows into the Indian market.
What is your take on how the Finance Minister dealt with the agri or rural theme? Do you think that the sector did not see too much of a thrust and more was expected on that front?
I am not too worried about that and in fact I was happy that they did not do move in that direction and hoping they realise at the end of the day that if India is going to continue its fast development, they have to look at how the rural sector is going to be moving into the urban areas.
In other words, the workforce has to move out at the rural into the urban areas and that means more productivity and higher employment in the industry and that is a reason why infrastructure is important because when you look at the history of any of the countries around the world, the growth came in the early periods of their development from infrastructure and employment of the rural sector into the infrastructure arena.
For example, in America after World War II, there was a big move to employ people in building roads, bridges and it went a long way towards increasing activity of the economy. I am hoping that is where the movement will be going forward.
Going forward given that we are still seeing a slowdown on consumption front which is still waiting for a pick up based on some of these incentives that have been talked about, do you really see much appreciation happening in the stock markets? Are you concerned about the downside?Do you really see us moving in?
I am not too worried about the downside I think yes there will be corrections along the way but the upward trajectory is long term and is still in place. I believe that the Budget emphasis on the capital markets should be augur well for the Indian market. Particularly in the medium, small cap arena that is going to be very important but largecap is also going to benefit from the emphasis on a lot more and more issues by the large companies. The FM mentioned in the budget if you want to see more of these shares being issued even among the large state owned enterprises which is very good.
What is your take on the earning season and specially for IT? Tomorrow we officially kick start with IT bellwether TCS delivering its numbers.
There will be some disappointment along the way. The market anticipates these kinds of announcements in earnings development and I believe that there probably be some bad news coming out but it would not be universal and it will be a one-time event which is going to really affect the longer term development. Hopefully India can come to terms with US in terms of trade, so that would be good news for Indian development as well.
What else would you be buying even if we have dips in the market? What is looking good other than infrastructure when it comes to India?
As you know I have always been interested in the consumer arena so I do not think that something that should be ignored, particularly in the small and midcap area. Infrastructure I have mentioned and very selectively the non-bank financial companies.
On the consumer front I know you said you are not worried about the slowdown you see it picking up again any description you can give us broadly in terms of whether you are looking at discretionary, non-discretionary any particular pockets?
Consumer disposables are particularly interesting because per capita incomes are going up and that is one of the areas where you can see immediate pick up so the kinds of things that are consolidation that is happening generally will be very good for investors and I believe that is one area that we own looking up very closely.
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Overseas investors hungry for yields, Budget bond announcement very timely: Mark Mobius have 2389 words, post on economictimes.indiatimes.com at July 8, 2019. This is cached page on TechNews. If you want remove this page, please contact us.