 "India's situation is not sounding any alarm bells: Cameron Brandt")
What is the consensus among foreign investors about the outcome of elections in India? How is this playing?
There is a general consensus that the Bharatiya Janata Party will be in the driver’s seat after the election. But most expect they’ll need some degree of support from smaller parties to form a government. There is the expectation that whoever wins will have made promises of significant economic reform and some foreign money has moved in to take advantage of any reform rally. How long that money stays will depend on the mandate the winner gets and foreign perceptions of their ability to implement it.
Will a clear BJP mandate have implications on the flows?
If the BJP has a working majority, I think investors will take another look at India, since the magnitude of the victory needed for that to happen will signal a real appetite on the part of India’s electorate for a different economic direction. Coalition governments and economic reforms are usually uneasy partners.
Foreign investors have been buyers of Indian equity over the past few days. What does it signal? Is this long-term money?
I doubt it, though some of this appears driven by the attractive valuations of Indian blue-chips in dollar and euro terms. But most of it seems to be aimed at capturing any pre- or post-election ‘bounce’ and is coming from sources — hedge funds, SWFs (sovereign wealth funds), rich individuals — that we don’t capture.
Flows from the US and European equity funds that we track to India since 2012 — in both cases, the longer-term, actively managed funds — are pulling out more money than the exchange-traded funds, which tend to be the vehicles favoured by the shorter term, ‘tactical’ investors.
What is your assessment of the Indian market vis-a-vis other emerging markets (EMs) like China?
If China’s credit issues really start to bite, I think that will generate headwinds for all EMs. But, in relative terms, India will fare better than most, as it is not as exposed to export performance as many regional peers. Slower Chinese growth is also likely to keep a lid on oil prices, a significant factor when it comes to the size of India’s current account deficit.
Are investors not worried about India’s growth and rupee volatility?
Again, given the issues facing most EMs, India’s situation is, relatively speaking, not sounding any alarm bells. India’s policy responses over the past nine months have also been reasonably effective in terms of stabilising the rupee and tackling inflation. And, Reserve Bank chief Raghuram Rajan’s stock with the foreign financial community remains high.
How do you think the next eight to 12 months will be for Indian equity markets in terms of foreign inflows?
Investors are definitely taking a more country-by-country approach at the moment. A market offering a credible reform story is likely to see stronger foreign capital flows. A lot will depend on implementation. If India’s new government balks at reforming the economy, then money that flowed in ahead of the election will be quick to leave.
What is your reading of global developments such as easing of the US Federal Reserve’s tapering and return of global growth, particularly in the US and Europe?
Growth is still fragile, especially in Europe, where deflation could become a real issue by the end of the year and there is a lot of political risk at the moment, from events in Ukraine to the tensions between countries bordering the China Sea. So the chances of a consensus-altering shock, be it economic or political, are high.
How are foreign investors reading these trends? Can they pull out of the Indian and emerging markets in the months to come?
It appears investors have moved pre-emptively over 10 months when it comes to EMs, with steady redemptions from EM equity funds, especially those with broad, general mandates, and a greater focus on individual markets.
In India, where are the foreign investors investing in terms of sectors, etc?
In absolute terms the Asia-dedicated funds we track have the greatest exposure to financials, information technology (IT) and consumer plays. The former, along with allocations for the energy and materials sectors, have slid during the past six months, while both consumer discretionary and staples weightings have risen, as have those for IT - a plus for India - and health care.