India’s exports may have taken a hit (July exports grew just nine per cent year-on-year after growing over 30 per cent in May and June) due to weaker Western economies, but the domestic story continues to shine with GDP growing at its fastest for the June quarter in three years at 8.8 per cent. In fact, slow recovery and a strong domestic base will act in favour of India, which will continue to attract long-term funds, according to Cameron Brandt, global markets analyst, Emerging Portfolio Fund Research (EPFR), which tracks fund flows and asset allocation data of funds with assets totaling $13 trillion. Edited excerpts from an interview to Ram Prasad Sahu:
Do you expect India will continue to see robust FII inflows?
Yes. The flows are as much a long-term trend as a short-term. US money managers have, for several years now, been rebalancing global portfolios away from the US and Europe to emerging market equities to offset the impact of the slower growth and dollar weakness they anticipate during the second decade of this century. There’s also a lot of cash pulled out of Israel during the June quarter, ahead of its promotion to a developed market status, and that is being re-allocated among other emerging markets.
Weak US data, lower commodity prices and demand for gold point to a muted growth picture and higher demand for less risky assets. Do you expect the current global situation to impact the Indian economy and markets?
India’s economy is less reliant on exports than many of its peers, but it’s also vulnerable to the high energy prices that usually accompany strong growth in the developed world. So, a slower growth scenario in the US and Europe is not necessarily a bad thing for India.
Are high inflation and interest rates a concern for investors? Can they cause problems?
They are more worried, at least in the short run, about the possibility of deflation and the difficulty they are having in finding quality investments that generate the returns needed to meet their liabilities.
Are foreign investors worried about the not-too-encouraging industrial production numbers, trade data and June quarter earnings figures which were below expectations?
The more sophisticated ones are not. There was always going to be a bumpy patch when the unprecedented amounts of stimulus injected into the global economy during late 2008 and most of 2009 began to taper off.
Given recent trends and valuations, which sectors seem to be the most favoured ones?
Investors are still betting on commodities, but fund managers were shifting back to financials, going into the third quarter.
