While markets have been correcting the world over, investors are still bullish on India, given the robust economic growth and declining commodity prices. Bloomberg TV India spoke to Samuel Le Cornu, senior portfolio manager at Macquarie, about the valuation of Indian shares.
Many factors are at play in the global environment right now. The Fed hike seems to be top of mind. What are you anticipating next week?
It’s a tough one. It is really a bit of a guessing game. It is very difficult to put your finger on the pulse of the market because of so many different variables at play. We are really looking at India at the moment and I think there are many issues which are affecting many ASEAN and Asian economies. And the Indian economy is probably one of the classic examples because they have got the current account deficit, the budget deficit. And now the rupee is around a two-year low. So it is very interesting.
Yes, I think the monsoons are a very topical one. India’s Meteorological Department came out with a 14 per cent rain fall deficit. There is always an impact to the economy on that. And also we have seen the most recent GDP number, which came out at 7 per cent for the quarter, which was a lot lower than what most of market commentators were expecting, particularly on the back of the previous quarter, which was 7.5 per cent.
There are a couple of things which are really going in favour of the Indian economy. Oil price is one of the classic examples. Every sort of $10 per barrel fall in oil prices, you are saving around $11 billion impact on the current account deficit, which is in a positive way. So commodity prices being low are obviously one benefit.
So the Indian economy is in a little bit of an arm wrestle at this moment. It relatively is the best performing economy in Asia, much better than China.
Talking about China, how are you reading the current data coming out of the region?
Capital outflows have been very topical as you have seen. A record month of outflow really took a dent in the forex reserves. But again the forex numbers stand at $3.5-3.6 trillion, off the all-time highs but still a very healthy number.
They hold more than a third of the world’s excess forex reserves. It is still a very healthy figure that we look at. I guess it is the outflows that are very topical and they are not going to continue from here. Already till today they had significant capital outflows which is putting pressure on the renminbi.
Just coming back to the relative situation of where the Indian markets really stand. How do you see the Indian markets currently in terms of valuation? From the correction that you have seen in the Nifty sometime in March to where we currently stand, the valuation has now become attractive or do you believe we are still looking expensive?
I am quite pleased with the 15 per cent pull back in the recent months for the Sensex and Nifty. India is still one of the most expensive — it is second to the Philippines, which is the most expensive in the Asian region. India has some wonderful companies and great opportunities as well.
The whole ‘Make in India’ theme, consumer discretionary, healthcare and staples, looking at the fact that it is the world’s largest middle income class of 250 million individuals. So I think there is great imbedded value in structural growth in India on the consumer level. It remains the valuation. So we are looking for a continued pull back and then with lot of confidence hike we will come in and buy some of these really good Indian companies that we wanted to buy for a long time. But we were being incredibly patient because they have been expensive for a long time as well.