Adrian Mowat, managing director and chief emerging market strategist, JPMorgan, tells Priya Kansara Pandya and Krishna Merchant that the Indian growth story justifies the high market valuations. Edited excerpts:
How does India stack up among other emerging markets including China?
The emerging markets have had relatively robust growth after the impact of financial crisis receded. They have rebounded faster than the developed world. India has been right in the middle of such high growth. Though it will run on high current account deficit (CAD) to drive such growth, I think it is easy to fund CAD in the current environment. India’s growth is attracting capital, despite high inflation here, which I think is manageable and better than deflation.
Thus, India looks attractive and we expect it to grow faster than China next year. A clear indicator is the strong order backlog of engineering companies, which hints at robust economic activity in the next couple of years. On the other hand, China is moving away from its traditional policy of fixed asset investment and moving towards pushing consumption.
But don’t you think it is all factored in India’s valuations compared to other emerging markets?
No doubt, India is trading at high valuation. But, this is inevitable, as bulk of Indian market is also offering high growth. When growth is scarce elsewhere, you have to pay a valuation premium.
Compared to history, valuations look expensive. But, when compared with relative opportunities, I think they are attractive.
What are the risks you perceive?
India’s continued outperformance over other emerging markets is not so much of concern to us as much as stubbornly high inflation here. We are watching out for Reserve Bank of India’s (RBI’s) reaction to the inflation data. If core inflation keeps rising, and is followed by strong credit growth, then we fear more aggressive rate tightening. However, in the short term, we expect interest rates to rise less aggressively.
