Jan 11, 2017 10:16 PM IST | Source: CNBC-TV18

Cash ban clouded earnings view, 'triple tax' a worry: Ashburton

The uncertainty in Indian market is magnified due to worry over introduction of triple taxation on foreign funds with over 50 percent India exposure in the upcoming Budget, says Jonathan Schiessl of Ashburton in an interview to CNBC-TV18

Demonetisation has clouded the earnings outlook of Indian companies and led to increased uncertainty in making investment decisions, says Jonathan Schiessl of Ashburton in an interview to CNBC-TV18.

The uncertainty is magnified due to worry over introduction of triple taxation on funds with over 50 percent exposure to India in the upcoming Budget, Schiessl says, adding, Ashburton has so far not made any majro changes to its India portfolio.

He notes that despite valuations in certain counters and indices going back to realistic levels, it is preferable to wait and watch until the uncertainty wanes.

However, he does expect healthy earnings towards the latter part of the year to lead to some recovery in markets. 

Below is the verbatim transcript of Jonathan Schiessl’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: You have been a long India investor, so, I wanted your thoughts on whether Indian market has become attractive again after the kind of serious underperformance that we have seen not just with developed markets but even with emerging market space?

A: Clearly last year India had a pretty tough time. Certainly I think valuations are becoming quite attractive before this latest rally. Obviously the whole demonetisation issue has clouded the earnings outlook and gross domestic product (GDP) growth to some extent and obviously the commodity complex and energy prices have pushed up other emerging markets. So, I think India because of that little bit of uncertainty, did underperform but, more recently we are seeing some of the largecaps beginning to start moving and in this latest short term rally.

Sonia: I wanted to ask you your view on these taxation issues which have started worrying a lot of foreign portfolio investors. There could be an additional tax perhaps even retrospective tax levied on internal transfers amongst India dedicated funds. Have you been hearing about that, would you be worried about something like that being announced in the Budget?

A: Extremely worried. We have spent some time over the holiday period speaking with our advisors in India and elsewhere on this particular matter. The last thing we needed was a bit of uncertainty on that front again from a foreign investor perspective. Seems like layers on layers of additional reporting burden, triple taxation, it is just unfortunately very unhelpful for foreign investors when considering India that we have another problem like this. So, we are hopeful there might be some clarity on this particular issue within the Budget that obviously we are making representations where possible.

Anuj: It is all about bottom-up stock picking but from Indian market what kind of returns will you expect this year especially if we don’t have the unfavourable issues in Budget that we referred to?

A: I think initially our expectation was it would be probably a back-ended type of behaviour where most of the gains would come through towards second half of the year be it due to us, the market and everybody getting more clarity about the impact of demonetisation and the impact on earnings. So, obviously we are getting a bit of a rally now and I still think it is going to be a tough volatile few months ahead but I think India after basically doing nothing in dollar terms for the last couple of years, if the earnings can start coming through towards the latter half of the year that I think the market could produce good returns. However, I think there will be a bit of volatility for the next few months.

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