Robert Parker of Credit Suisse AMC feels Indian rupee is undervalued and that is a positive in terms of investments. He believes that Indian market will form a base in September and October but it is too early to take a call.
In terms of the valuation, he says India looks expensive compared to China, despite the poor performance this year.
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Below is the verbatim transcript of his interview to CNBC-TV18
Q: How are you positioned on India now because we have seen foreign institutional investors (FII) pullout about close to USD 10.5 billion in debt and equity markets in June and July because of depreciating rupee? With things now getting worse, would you be slightly circumspect on the Indian market and change your view perhaps?
A: I still think it is somewhat too early to identify the Indian market as I thought it would form a base in September and October. Since we last spoke, the currency has weaken further and tested close to 61/USD a number of times.
I would now argue that the Indian rupee is undervalued and that is a positive in terms of investments. It is also positive for the Indian export sector. Having said that year-to-date the Sensex 30 was down 1 percent. That has outperformed China quite significantly and justifiably so with China down about 10 percent year to date.
However, if one is looking for the Indian market performer based and rally and outperform other markets, I still think it is somewhat premature.
Q: How are you looking at the jobs data and how does this queer the pitch for tapering as well therefore how would fund flows organise themselves. Will you see a pullout from emerging markets if tapering were indeed advanced to probably next month or October?
A: My view has always been that tapering would start in September and if that doesn’t happen then in October. I think the Q4 of this year is going to be characterized by a slow tapering. By slow I mean probably moving down from USD 85 billion per month to close to USD 50 billion per month by the end of the year.
If we look back to last week’s non-farm payroll data and the unemployment number, obviously the non-farm payroll data was not as good as market expectations. Arguably market expectation was somewhat over optimistic.
I think the picture of the US economy is very clear which is, the Fed said modest improvement. That means more than 2 percent growth in second half of the year and it means that the improvement in the employment data continues to occur but that improvement is very slow. So, the conclusion is yes, they will taper but the pace of tapering is going to be very slow.
If that underpins global equity market but the fact that we are having tapering means that the pace of rally that we have had particularly in the US market is going to slowdown. So, yes the US equity market continues to rally but the extent of the rally will be much more moderate.
Q: We are more worried about what that might mean to fund flows into emerging markets in India. How do you assess that?
A: The big theme this year has been two fold. 1) The underperformance of Morgan Stanley Capital International (MSCI) emerging markets versus the developed market index with the MSCI emerging market index is still down about 10 percent year to date. 2) The underperformance of the Brazil, Russia, India, China (BRIC) versus the non-BRIC.
So, if one focuses on Asia and some of the non-BRIC markets, we have still got the Indonesian market despite the setback in last month or two. It is still up close to 8 percent year to date. If one looks at the Philippine market, it’s still up 12 percent year to date.
So, there are two questions; when do emerging markets start to outperform again and emerging markets are cheap on any valuation basis. We will have the Q4 rotation based on cheap valuation and I do think we could see convergence between the BRIC market and the non-BRIC market. Some of the non-BRIC markets are now looking somewhat overvalued.
Q: Between India and China do you think that money managers would rather put their money into China now vis-à-vis India because of the improvement that we have seen in data in the past couple of weeks and months?
A: The data that has come out of China in the last few weeks show that the growth is stabilising in a range of 7-7.5 percent. If one looks at foreign investor positions in China, obviously they are very low because the Chinese market has been very frustrating place to invest for at least the last 18 months.
So, if one looks at domestic Chinese investors and foreign investors, they are very underweight in terms of their positions in the Chinese market. My view is that once we get better data out of China and that will happen in September and October with growth moving back to 7.5 percent then foreign capital will move back into the Chinese market. In terms of the valuation of China versus India despite the poor performance of India this year, India is still slightly more expensive than the Chinese market.