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As dollar-run and crude prices stabilise, funds flow will return to India: Rana B Gupta, Manulife Asset Management

Medium to longer term basis, we are quite positive on India, says the MD, Indian equities.

ET Now|
Updated: May 28, 2018, 04.16 PM IST
The underlying fundamental and the earning growth for the emerging markets remain quite strong, Rana B Gupta, MD, Indian Equities, Manulife Asset Management, tells ET Now

Edited excerpts:

Are we are in a bit of an interim blip before we resume the uptrend or could this be a sign of things going down the hill?

No, no, it would be more of a blip. Our view is that some of the emerging markets like Turkey and Argentina are facing tough times and rising US dollar and rising oil prices had created some pressure on emerging markets, including India. We always believe that with oil prices above $80, we would have supply response.

As far as the US dollar is concerned, the rally was caused primarily due to some of the weaker data from Europe and Japan. However, in the last five-six weeks, the rally is getting priced in. At the same time, the disappointment from Europe and Japan were mostly due to elevated expectation and was a one-off. So, what we are saying is that probably US dollar run and crude prices are stabilising. As and when that happens, we would expect flows to come back to emerging markets Asia, including India because the underlying fundamental and the earning growth for the emerging markets remains quite strong.

When you say emerging markets are looking strong, why are you so confident because within the emerging markets space also, you have got commodity producers and consumers. The later will get hurt by high crude prices and the impact on other commodity prices.

When I am talking about emerging markets, I am talking about emerging markets Asia. My universe is restricted to emerging markets Asia and within that, we are fairly confident about earnings growth.

Traditionally Asia used to be a play on the global growth. However, we do note and we would like to highlight that the growth differential between emerging markets Asia vis-à-vis the rest of the world and the developed markets are diverging. That is due to the underlying reform and underlying developments going on in various emerging markets.

Take the example of China for example. They have now decisively moved towards a consumer-based economy. So, there are enough opportunities for companies in the financial space, in the consumer discretionary sector, in the internet sector to get growth.

Similarly, for India because of the reforms and the formalisation of economy, there are enough opportunities for companies in the organised sector or the corporate sector.

They are just few examples, but we believe that when we put all this together, the earning outlook remains strong. Of course, higher commodity prices will be a headwind for oil importing countries like India but we do think oil price around $80 per barrel is good enough to bring in supply response. That’s why we think cooling of oil prices is going to happen.

But within Asia, as the data suggests, month till date India has witnessed a bit more of selling pressure from FIIs than other key markets like Indonesia and China. On a relative basis, how are you looking at the pecking order where the damage could be in the interim if this unwinding continues?

If oil prices were to rise even higher and US dollar were to grow even stronger, obviously, the oil importing countries and the current account deficit tend to get hit the most. But our view is that in the short-term, that might happen but in no way, does the emerging markets Asia will have a scenario like the rest of the emerging markets. Those high oil prices or a higher US dollar might cause some growth and inflation related disappointment as opposed to what the market is expecting and that could lead to volatility in the market and some short-term outflows once those things settle down.

We believe they are in the process of beginning to settle down. We actually believe the flows can come back.

If I use MSCI for benchmarking purposes at Manulife, what is your India exposure? Are you overweight, underweight?

We cannot share our exact position in overweight and underweight terms as far as we are concerned, but we can highlight that looking at some of the longer term factors that are used for emerging markets.

Within India, we would like to refer to two reforms, one is the bankruptcy code related and the other is the GST, the indirect tax reform that opens up opportunities for earnings growth for the Indian listed corporates. We are quite positive on those.

I am not talking about your holdings, I am talking about your allocation?

No, we would not be able to comment over specific overweight or underweights on the markets but we can share with you that on the medium to longer term basis, we are quite positive on India.

Can you share your key preferred sectors in India?

Within India, if you look back in the last one or two years, the key thing that has happened are these two reforms related to IBC, bankruptcy laws and GST.

We believe that the way bankruptcy laws have been implemented, going forward corporate sector lending will reform. Now that too many banks have the capital to lend, so in the listed space the private sector corporate banks can gain quite a bit of market share.

As far as the GST is concerned, one of the impact of GST will be the organised sector gaining market share and we think that organised sector gaining market share this trend will be most pronounced in sectors like organised retail, in private sector lenders, in real estate and some of the smaller sectors like staffing and logistics.

Another impact of GST is that we are expecting revenue buoyancy from the government. We would have better government spending and targeted government spending in areas like infrastructure and rural development but not at the cost of deficit. In that way, there are good opportunities available for companies linked to these areas.

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