Investors in India are warming up to thematic investment, going by the recent trend in inflows. However, it is an established practice globally, especially among well informed investors. SBI Funds Management’s joint venture partner Amundi, the world’s fifth-largest asset manager, has a separate arm, CPR Asset Management, headquartered in Paris, which specialises in thematic investments. Of the assets worth €57 billion it manages, about 31 per cent are thematic. Vafa Ahmadi, Managing Director and Head of Global Thematic Equities, CPR AM, spoke to businessline on the emerging trends. Edited excerpts from the interview:
How do you see the investment opportunity in India?
I will be blunt to say that India is a very positive case for investment. It does not need a long narrative. Everybody understands the fundamentals and path of the growth ahead of India. When you pitch, India itself is an asset class on its own. Urbanisation in India is one of the major trends of the 21st century, besides infrastructure and consumption. However, the only minor caveat is the market valuation, which reflects very sound and healthy fundamental.
With India on such a growth pattern, the only question is how much investors are willing to pay for this growth. High valuation has not stopped the market from performing. The themes that can play in India are infrastructure, consumption and IT. If we can go a little bit deeper we can talk about outsourcing, but these are secondary agents.
How do you rate India as an investment destination among other developing countries?
The backdrop is changing positively in favour of India. Many funds are being launched ex-China. Once again that emphasises the central role of India as one of the most important engines. Most investors are looking for an entry.
Obviously there are other countries such as Indonesia and Vietnam, but India has the scale and market momentum. It has a vibrant domestic market. Manufacturing is also a big theme in India. There is a lot of focus on outsourcing.
The shortage of medicine in Europe during the Covid crisis showed the prowess of India in pharmaceuticals.
I am not talking about where India will be in the next 20 years. One of the main painkillers we use in France is paracetamol and about 80 per cent of it is manufactured in India. The investment community has changed its view of how India has become an advanced industrial country in many aspects. India already produces many top-level world-class engineers who are exported to the rest of the world. India’s dominance in IT is playing out for the last 25 years.
Now we are talking about pharmaceuticals, chemicals and many other stuff. The investment community has already taken note and India is a major force driving the emerging world.
How is the European economy doing now?
It is sluggish. The growth rate is very low but we are not in recession. The good point is that the inflation is going back to 2.5 per cent threshold, which has been the target of the central bank. Interest rates will start declining in Europe as well as in the US. So all this is supportive for a little bit of growth. Margins, which are still at a good level, are slightly improving in Europe. Falling interest rates is supportive for equity markets. We are hopeful to have a rather okay equity market this year. The season of corporate results was rather promising in 2023 and we will start off the first quarter on a positive stance. Valuation is really low.
Will the carbon tax on imports into Europe lead to inflation?
There is a lot of talk on this. There is also talk on what we call the monopolistic US IT companies that operate in the UK. There are political factions which are in favour of a certain level of protectionism in Europe in such matters, including electric vehicles from China. I cannot say if all this will be implemented. However, the trend in green energy generation is strong in Europe, and France has been in the forefront. It is an unstoppable trend. The implementation is a different story. There is a certain sense of protectionism coming into the game.
Will delay in implementation of carbon tax impact European companies?
It has been delayed for two major reasons. All capex planned before inflation has gone up by 10-20 per cent a year. So all the projected capex are delayed. This has hit many green companies in stock markets last year. With the stringency of budget, many European states have not been participating in implementation of green energy as promised. Subsequently, some green energy stocks in Europe did badly last year. If you look at it as a trend over a decade, it is non-stoppable. Engagements at corporate and state levels are important. If you just skip what happened in the last 18 months, a lot has been done by every single country in Europe at different paces.