With signs of a revival in developed economies being visible, there is a change in risk aversion among overseas investors. Raj Bhatt, vice-chairman and CEO of Elara Capital, a full-service investment bank based in London, informs Akash Joshi about the opportunities the Indian stock market has to offer and some key investment trends going forward. Edited excerpts:
What do view do you have of the risk-aversion levels in the global market place? Do you see it easing, and how would it impact the Indian stock market?
As all know, there was a lot of liquidity that got pumped in during the sub-prime crisis and then, when it cleared, there were concerns about sovereign debt. However, these have not impacted the Asian economies to the extent that we thought it would and as it had happened earlier. So, there is an element of decoupling that has taken place.
Now, the growth in the US earlier was due to high consumption. It is now giving way to better savings. And these are huge numbers that will need to get deployed. And the emerging markets — India and others in South America and even Africa — will get better allocations. However, in India, the market is relatively small with a trillion dollars of market capitalisation and a low float. There are not many opportunities to absorb a higher inflow. The private equity route looks more attractive at the moment.
There has been some amount of structural changes in the interest rate scenario and the banking system. How do you view this?
They are all positive moves. The Reserve Bank of India has built a high level of credibility in the global scenario and this is very positive as well. Yes, inflation has been a surprise and we do see some amount of hardening in interest rates, but not very high.
From an investment perspective, what are the concerns you see in India?
Clearly, inflation is a major concern at the moment, and also the deficit. India has very little leeway to borrow in the international market. Hence, its dependence will be on domestic debt and this could have an impact on growth rates.
So, what sectors do you find attractive?
We believe that the domestic consumption story will play out very strongly in the days to come. Sectors that serve this would be the ones to do well. Be it automobiles, pharmaceuticals, FMCG and any other sectors that depend on the growth in consumption in India. The export-oriented sectors would not attract so much attention as the US and Europe markets, the main destinations, are not expected to grow more than two per cent. Hence, the demand would be muted. We also like certain sectors that would benefit from the infrastructure thrust in India.
What is your overall view of the stock markets?
India is an attractive market and we think that, at the moment, it is fairly valued. So, we see a steady 10-15 per cent growth in the market indices in the days to come.
More From This Section
In case there are some strong positive triggers, the growth could escalate to 30 per cent at best. And, on the downside, there could be a 20 per cent correction, if at all. Even now, the Indian market has not lost as much as most of the other emerging markets have. So, overall, it has been steady.
You have been interacting with overseas fund managers. What are they saying and looking at?
Surprisingly, even now, many fund managers, especially in the US, do not know much about the Indian market. So, we have been working on marketing India and the opportunity overseas. And this is a positive as there would be many more investors wanting to come to India as the awareness increases and the risk aversion decreases.
