Christopher Wood, managing director and chief strategist at CLSA, has been optimistic about Indian equities ever since the Modi government took over.
In an telephone interview with Rajesh Bhayani, he says India is still the best story in major emerging markets from a 5-year perspective. Edited excerpts
There are three big events afoot that could have a long-term impact on global financial markets — Greece, the Chinese equity markets, and the impending US Federal Reserve interest rate hike. How will these events impact the global and Indian markets?
The biggest potential issue for world markets is an attempt by the Federal Reserve to tighten its monetary policy. But more evidence of US wage pressure is needed for the Fed to really start raising rates.
Has the fall in Chinese equities made India a costlier bet?
India is still the best story among major emerging markets from a five-year perspective. Both are different markets and if the India story is good, it will continue to receive more money, irrespective of Chinese market developments.
Is the worst over for Indian markets? Do you see pressure on earnings to continue for some more time?
There is still a risk of near-term earnings disappointment. The issue for Indian earnings is the sharp decline in nominal GDP growth, which has fallen from 13.6 per cent, year on year, in July-September 2014 to 7.7 per cent, year on year, in January-March 2015.
But this decline is for a good reason, the successful squeezing of rural-sourced inflation as a result of the Modi government's change in policies towards food subsidies. This paves the way for much lower interest rates.
What is your advice for Indian investors?
As I said, in the near term there is a risk of earnings disappointments and hence equity investors should invest on incremental basis, month on month.
Indian investors should also invest in long-term government bonds, say, 10-year government of India securities.
While I see interest rates in India going down, I also see monetary policy will remain tight, which will help the rupee to remain stable.
What is holding back India’s growth? Slow execution of reforms or lack of demand?
The key issue is addressing the legacy non-performing liabilities in state-owned banks and that can be addressed by recapitalising them.
Will the yellow metal revive in the near future? Even the rupee is holding firm against the dollar. How do you view these assets?
The rupee is stable because of tight monetary policy. Gold will trade around Fed policy and so far the Fed has talked a lot, but done nothing.
