How are you analysing the emerging markets like India right now?
We have seen the emerging markets struggle a bit in April as the US 10-year treasury yields closed above 3% first time since 2013 as did the US dollar rallying after 12 months of weakness. We have seen a little bit of underperformance by the emerging markets for the past week round about 3%. But we are still encouraged by the fact that corporate results across emerging markets in all areas have been quite good and we still have a favourable global economic backdrop.
We have seen the emerging markets struggle a bit in April as the US 10-year treasury yields closed above 3% first time since 2013 as did the US dollar rallying after 12 months of weakness. We have seen a little bit of underperformance by the emerging markets for the past week round about 3%. But we are still encouraged by the fact that corporate results across emerging markets in all areas have been quite good and we still have a favourable global economic backdrop.
Our view is that the dollar is simply a counter-move, not a start of a strong secular appreciation and it is likely to weaken in the second half of the year and that would be the positive backdrop for emerging markets. We see this more as a pause and not really as a major reversal or correction.
What will be the factors that will drive the Indian markets from here on?
It is going to be decent earnings in most geographies. In the overall asset class, we are looking at 15-17% increase in earnings this year. We have seen capital discipline as well as improvements in return on equity. The global macro backdrop of continuing synchronised recovery is not really in doubt. We have seen some weakness in the European numbers in some of the soft data. But that is just indicating that this global cycle and momentum is probably going to peak in the first quarter.
We are not expecting a rapid slowdown and so this is an environment in which the emerging markets can continue their recovery.
A lot of EMs will be facing elections; Malaysia has just had one and India is going through some of the state elections as well. Does that make FIIs such as yourself cautious on the region?
I do not think so. The elections in Malaysia will be treated as a positive on a net basis by foreign investors. I know that some of the policies might see fiscal slippage but generally they will see improvement in governance.
We are not expecting a rapid slowdown and so this is an environment in which the emerging markets can continue their recovery.
A lot of EMs will be facing elections; Malaysia has just had one and India is going through some of the state elections as well. Does that make FIIs such as yourself cautious on the region?
I do not think so. The elections in Malaysia will be treated as a positive on a net basis by foreign investors. I know that some of the policies might see fiscal slippage but generally they will see improvement in governance.
In India, we have important state elections. I do not think that is really going to be a critical factor for foreign investors but of course like everybody else, we want to see how the Modi government performs in Karnataka.
The state elections in India versus the main election in 2019 -- as an FII, what do you think would be more important? Many are looking at these state elections as semi finals to the grand finale of general election in 2019?
The concentration of elections is later in the year. It is something which foreign investors look at as a guide to the Modi administration’s performance in terms of its popularity. I do not think it is critical in itself. Any major reversal is not expected. We have seen pretty decent performance so far.
As an FII, who has been an India watcher for so long, how would you rate Modi’s work done so far?
We have seen progress in key reforms related to public sector banking, real estate, the goods and services tax etc. He could perhaps delegate a bit more. He seems to want to keep a tight rein on policies. It is a pretty strong record for his first term.
No comments:
Post a Comment