Stock Market

India growth story solid, expect flows to come in: Ashmore

Jan Dehn, Head-Research, Ashmore Investment Management, strongly believes that the India growth story is still solid and once the government capex comes through the growth story will become more sustainable, which in turn will pull retail investors and foreign institutional investors (FIIs) back into India.

However, India is more expensive relative to other emerging markets (EMs), he says in an interview to CNBC-TV18.

From a global perspective, he thinks the deeply entrenched negative sentiment about the US economy is driving sentiment at the moment.

He is not as bearish on emerging market equities as he is on the US. According to him, EM equities are attractively priced than developed markets and more so because the dollar is weakening. 

Below is the verbatim transcript of the interview..

Q: So markets are taking – I believe – Chinese trade data not too well. There was so much of enthusiasm around particularly commodity stocks yesterday and commodities in general. A lot of that seems to be fading away rather quickly?

A: Yes, but if not China per se, it is true China’s exports were down but when Chinese exports are down it is because somebody outside of China is not buying and of course what the real concern here is that we are at the very end of the sort of massive multiyear monetary stimulus that we have seen in the western world since the onset of quantitative easing (QE) and their interest rate policies.

These policies have purely stimulatory but there has been very little done on the supply side, very little done on the underlying debt picture and we have now reached a situation where the developed economies are really beginning to struggle here and it is very hard to see where the upside is in the financial markets and also where the growth is going to come from.

So, at the margin what is driving sentiment right now is a quite deeply entrenched negative sentiment about the US economy in particular that there is very little upside and that is what is driving global sentiments right now.

Q: You sound quite bearish on equities. So, is that a call in general on equities or are you more bearish on the US vis-à-vis Europe, what is the call?

A: Actually what I think is I am not particularly bearish on emerging market (EM) equities to be honest. US equities yes, I am a little bit worried about US equities but what is critical from the rest of the world’s perspective particularly in the EM is that the dollar has started to go down and the dollar has been the all determining driver of global capital flows of the last four years. Enormal volumes of capital has been sucked out of EM because people have wanted to be long dollars but the dollar is now weakening and that means that not only will people look at valuations in EM and compare them to valuations in United States on a sort of a more level basis but if the dollar continues to decline then you are going to EM markets. You are actually going get FX upside and that means that all the local instruments whether they be fixed income or equities begin to look interesting. Of course within EM the equity picture is significantly more attractively priced than what it is in the developed markets.

Once we look within EMs then there are some markets that are granted more expenses than other and India is actually one of the more expensive markets relative to some of the other markets in EM that have been beaten up more over the last few years.

Q: Your calls on EMs is tying in very nicely with the kind of fund flow data that we are getting here in India because foreign institutional buyers have finally turned a little positive on this market at least in the last few days. Even today they have been net buyers of Indian equities. Can this trend continue, are you expecting more foreign flows to come into a market like India?

A: I do expect more flows to come into EM including into India. I think the Indian growth story is pretty solid. Once we see more capex spending coming in through the Budget, I think we are going to see that growth story have sustainability  behind it and that is gradually going to pull retail investors as well as foreign investors back into EM.

The technical position across EM is incredibly benign. Since the taper tantrum there is not a single asset manager or a single manager of EM assets in the world who has not seen their assets under management decline significantly. EM currencies are down sort of 30-50 percent versus the dollar.

So, there is a lot of value here and you could even argue that on the back of the weaker currencies we have in EM, you are likely to start seeing a cyclical pickup led by net exports coming out of EM. We are also going to start seeing reserves stabilising across EM. We are seeing that in several Asian economies already, Thailand, Indonesia, Philippines are seeing an increase in their foreign exchange reserves and I think that trend is going to continue.

Q: The Indian market is about 8-9 percent off its 52 week low. How much more would you ascribe to this pullback rally? Do you think it has more steam?

A: Ultimately the Indian stock market should trade significantly higher than current levels but there is a very significant sort of cool drop coming in from the global environment right now which is probably going to hold back things a little bit. So, the recovery might be a little bit more gentle and so not take us to fair valuations immediately.