≡ Menu

Growth prospects make Indian equities good value bets: Peter Elston – The Economic Times

Though Indian markets have made a cautious beginning to the year and the emergence of the Aam Aadmi Party (AAP) has thrown a new twist to the election tale, Peter Elston , head of strategy and asset allocation, Aberdeen Asset Management, which manages assets worth over $325 billion, and is one of the largest FIIs to invest in India, expects the BJP to come to power in the 2014 general elections unless there are major changes in the poll script. Elston has given a ‘C’ to the current UPA government in his report card and said in an interview with Biswajit Baruah that it’s a travesty that India’s GDP growth has fallen below 5% . Edited excerpts: Opinion polls suggest that BJP may emerge as the leading party in the coming elections. What do you anticipate, especially with the emergence of AAP, and how will the markets behave? It appears that a BJP-led victory is expected, which is probably reflected in the stock prices as well. Unless there’s a huge change in the election outcome, I wouldn’t expect the election to influence equity markets in a big way. In the long term, I think it’s essential for India to reduce corruption among politicians. The US Federal Reserve has announced tapering: how do you think this might impact emerging markets, including India? Given that Fed’s bond-buying boosted emerging markets, its tightening will no doubt have a negative impact on the emerging markets, including India. The question is, how negative? Since the Fed is still buying $75 billion worth of bonds every month, we suspect the impact to be minimal. But this may not prevent market participants from guessing that Fed’s bond buying will end completely, though there’s nothing to justify that since the US economy is still weak. FIIs have made a tepid start to 2014 after investing over $20 billion last year. What are the factors likely to influence foreign fund flows to the country? I guess the factors are common to all emerging markets, not just India. The obvious one would be the realisation that central banks’ monetary policies in the developed world remain very loose despite the recent announcement by the Fed that it would start tapering bond purchases. I also think that Indian equities are very good value in the context of the country’s excellent long-term growth prospects. While the price-earnings ratio may be higher than that of the MSCI Emerging Markets index, India has a lot to offer. Its working age population is still growing and the scope for productivity growth remains substantial. The government has announced a slew of reforms — some populist, some market-oriented — over the past year. What’s your take? I would give the government a ‘C’ on its report card. It is a travesty that India’s GDP growth has fallen to below 5%. With the right policies, this wouldn’t have happened. The Reserve Bank of India (RBI) has said that inflation numbers will hold the key to monetary policy decisions. Do you expect interest rates to ease in 2014? To some extent, higher inflation is the result of India being in the early stage of its growth trajectory. But it also reflects the twin budget and current account deficits. Until these are controlled, or at least narrowed, monetary policy implementation will remain a challenge for the RBI. Which are the sectors you are currently overweight on? Are you betting on sectors linked to revival of the US economy? The sectorswe are overweight on are the same ones a year ago and the year before that; we are long-term investors and change our portfolios only gradually. A year back, we were overweight on information technology, but we have taken advantage of the rupee weakness and the strong sector performance to reduce the overweight substantially. Besides, overweights are the result of where we find good companies as well as good prospects for the sector. So, our big overweights are in cement and consumer staples.
Source : Click Here

{ 0 comments… add one }

Leave a Comment