Positive on India from long-term perspective: Schroders

Q: We have had a neat rally through this week. What is your feeling about India and how is institutional interest towards this market?

A: We are positive on India from a long-term perspective given the superior growth which is expected. Over the short-term, we still find the market relatively expensive versus other emerging markets, with respect to premium and valuations.

But at the same time, we are concerned about rising inflation and the impact of oil prices on the current account deficit. Overall, we are cautious on India over the short-term to medium-term and on the longer-term we are positive.

Q: What will this month possibly throw up for global equity performance?

A: It is a very difficult one because the issues remain broadly with respect to emerging markets. The growth profile is good and certainly they continue to grow at a significant premium to developed markets. From that perspective, we are positive on emerging markets. The issue that remains for the emerging markets is one of inflation across all of these markets and depends on how food prices and commodity prices do over the short-term. For now, it depends on whether we see moderation in some of these inflation numbers and whether Chinese inflation has actually peaked.

If we see that appreciation happening, then it is broadly positive. However, the inflation issue is probably the greatest headwind for emerging markets right now.

Q: What are you reading in terms of the rally that we are seeing in the US market? How will Dow’s four-month high be for the emerging markets? Does the Dow’s rally indicate more interest trickling in to emerging markets or does it mean interest shifting back to the US markets?

A: We are cautious of the rally in global versus emerging markets. One of the reasons we are cautious is that while emerging markets have an issue relating to the inflation, in developed markets the issue remains growth and whether US is facing recession and we think it will remain that way.

Now, liquidity conditions have eased and that is why we have seen a rally in markets. However, the issue remains and there is a risk. We are going into a protracted period of deleveraging in global economies and that is something that is going to mean subdued growth. That is certainly a risk now.

We are cautious about the rally that we have seen in global markets. In emerging markets, however, we are far more confident. We think emerging will continue to grow at more than 4% premium to developed markets.

Once we have got the headwinds of inflation out of the way and if commodity prices come off and the dollar rallies, we will see a rally in emerging markets.