 "We believe tapering of US Fed's bond-buying won't happen before 2015: Vincent Camerlynck & Nikhil Johri")
Vincent Camerlynck, chief exeutive officer, Asia Pacific, BNP Paribas Investment Partners, and Nikhil Johri, managing director and CEO, BNP Paribas Mutual Fund, say India could be at the onset of a period when the markets have stabilised and an upturn is round the corner. Equities will be a good investment option over the next few years. Edited excerpts of an interview by Puneet Wadhwa & Jinsy Mathew:
Now that we have some clarity on the likely road ahead as regards the policies of central banks in the US and India, how are you viewing India as an investment destination, given the macro,economic challenges the country faces?
Vincent: When we think of India, we think of opportunities and are convinced about the long term, given the India-centric dynamics like population growth and income growth. The big mistake most make is when they hope that reality will catch up with expectations quickly. That might not happen every time.
How is India placed within the emerging market pack?
Vincent: Earlier, emerging markets were seen as a basket. Now, there has been an increased interest in differentiating between these and investing directly into individual markets such as India, China. The large institutional investors are sending a stronger message of confidence on the economy and the stock markets than the domestic investors at this point.
Among the emerging markets, India and China are both very important, for different reasons. In the longer term, India has certain specific opportunities compared to China, like access to certain raw materials and a younger population.
Do you think the Indian equity market is at the foothills of a fresh bull market? And, will the ghost of a deteriorating rupee return, once the bond-buying tapering by the US Federal Reserve begins?
Vincent: We believe India is perhaps at the onset of a period when the markets have stabilised and an upturn is round the corner. There is no doubt that the (US Fed) tapering news can break the feel-good factor currently visible. However, we are of the view that the tapering won’t happen before 2015. What we hope is that in the meantime, the reaction to the news of tapering will not be very sharp, unlike what we saw the last time. There could be some risk-off capital outflows in emerging markets, especially India, a hit on the currency and the real estate market might suffer a bit.
It is only now that a market like Europe has come to a level of maturity. Perhaps the recent crisis was essential to allow the structural reforms. You cannot expect emerging markets like India to not have that kind of volatility or some sort of setbacks from time to time.
There has been a lot of talk around who the Indian stock market would like to see as the next Prime Minister. Any thoughts on this? What are foreign institutional investors (FIIs) eyeing from the outcome of the general election (next year)?
Nikhil: The election is a very important event but I don’t think the current rally is because large institutional investors are banking on the opinion polls and on any one party to emerge victorious. What they are certainly banking on is some form of stable government, lasting a full term. The new government will be expected to embark upon long-term policy initiatives that would kick-start an investment cycle. The market expects that with significant improvements in infrastructure, particularly in removing the bottlenecks in the food supply chain, the stickiness of inflation will be diluted, helping interest rates to come down on a sustainable basis.
Vincent: We generally see India as primarily depending on only the central government but it is interesting to see so much is being done by certain state governments, which has an impact on the growth of different sectors and contribution to the GDP (gross domestic product).
Though the markets are at all-time highs, euphoria is missing. Retail participation is missing and only a few sectors or companies are doing well.
Vincent: The challenges in India are similar to challenges in many other emerging markets. There is a huge potential because of the population base and improving income levels but the demand levels are not there yet.
When I look at India, I know it takes time for a more significant part of the population to have access and be willing to save in various financial instruments. For this, the government has a major part to play in terms of financial literacy, maybe with fiscal support to aid the mentality of long-term savings. Investing in mutual funds (MFs) and other platforms need to be understood.
So, it’s the challenge of the country, to make sure to help people understand why saving for the long term is important and this is where the MF sector can provide a platform to channel those savings, which ultimately would provide additional income over the long term.
Nikhil: The past two months have witnessed a renewed interest in Indian equities among local investors. Domestic investors are significantly under-invested in equities and this needs to undergo a transformation. It is important for local investors to understand that the equity markets can quickly turn around and make up for the opportunities lost during a bearish phase.
Now that we have some clarity on the likely road ahead as regards the policies of central banks in the US and India, how are you viewing India as an investment destination, given the macro,economic challenges the country faces?
Vincent: When we think of India, we think of opportunities and are convinced about the long term, given the India-centric dynamics like population growth and income growth. The big mistake most make is when they hope that reality will catch up with expectations quickly. That might not happen every time.
More From This Section
As we see a change in the mindset of domestic investors over the next few years, that equities will be a good investment option, I am sure India will be in a sweet spot. Over the past three years, we have had outstanding performance in equity and fixed income. People generally think markets are different in different parts of the world but, ultimately, there are similarities in trends. So, when we are confronted with apprehensions in one market, it helps us to react in an informed manner, since we, most likely, have encountered a similar situation in some other market.
How is India placed within the emerging market pack?
Vincent: Earlier, emerging markets were seen as a basket. Now, there has been an increased interest in differentiating between these and investing directly into individual markets such as India, China. The large institutional investors are sending a stronger message of confidence on the economy and the stock markets than the domestic investors at this point.
Among the emerging markets, India and China are both very important, for different reasons. In the longer term, India has certain specific opportunities compared to China, like access to certain raw materials and a younger population.
Do you think the Indian equity market is at the foothills of a fresh bull market? And, will the ghost of a deteriorating rupee return, once the bond-buying tapering by the US Federal Reserve begins?
Vincent: We believe India is perhaps at the onset of a period when the markets have stabilised and an upturn is round the corner. There is no doubt that the (US Fed) tapering news can break the feel-good factor currently visible. However, we are of the view that the tapering won’t happen before 2015. What we hope is that in the meantime, the reaction to the news of tapering will not be very sharp, unlike what we saw the last time. There could be some risk-off capital outflows in emerging markets, especially India, a hit on the currency and the real estate market might suffer a bit.
It is only now that a market like Europe has come to a level of maturity. Perhaps the recent crisis was essential to allow the structural reforms. You cannot expect emerging markets like India to not have that kind of volatility or some sort of setbacks from time to time.
There has been a lot of talk around who the Indian stock market would like to see as the next Prime Minister. Any thoughts on this? What are foreign institutional investors (FIIs) eyeing from the outcome of the general election (next year)?
Nikhil: The election is a very important event but I don’t think the current rally is because large institutional investors are banking on the opinion polls and on any one party to emerge victorious. What they are certainly banking on is some form of stable government, lasting a full term. The new government will be expected to embark upon long-term policy initiatives that would kick-start an investment cycle. The market expects that with significant improvements in infrastructure, particularly in removing the bottlenecks in the food supply chain, the stickiness of inflation will be diluted, helping interest rates to come down on a sustainable basis.
Vincent: We generally see India as primarily depending on only the central government but it is interesting to see so much is being done by certain state governments, which has an impact on the growth of different sectors and contribution to the GDP (gross domestic product).
Though the markets are at all-time highs, euphoria is missing. Retail participation is missing and only a few sectors or companies are doing well.
Vincent: The challenges in India are similar to challenges in many other emerging markets. There is a huge potential because of the population base and improving income levels but the demand levels are not there yet.
When I look at India, I know it takes time for a more significant part of the population to have access and be willing to save in various financial instruments. For this, the government has a major part to play in terms of financial literacy, maybe with fiscal support to aid the mentality of long-term savings. Investing in mutual funds (MFs) and other platforms need to be understood.
So, it’s the challenge of the country, to make sure to help people understand why saving for the long term is important and this is where the MF sector can provide a platform to channel those savings, which ultimately would provide additional income over the long term.
Nikhil: The past two months have witnessed a renewed interest in Indian equities among local investors. Domestic investors are significantly under-invested in equities and this needs to undergo a transformation. It is important for local investors to understand that the equity markets can quickly turn around and make up for the opportunities lost during a bearish phase.