Indian assets appealing compared to Asian peers: ING Vysya

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Mark Cliffe , Global Head of Financial Markets Research, ING Vysya Bank said that foreign investors have been rather shocked by the events of the last few days in the Indian markets. He added that a lot of cash is moving out of the developed markets and India is one of the prime markets so the authorities have to cope with a massive influx of capital, a lot of which obviously is short-term speculative money.

 

According to Cliffe, given the economic success of India there is a structural appreciation of the currency. He added that the rupee could go to 40.50 in the near term and that according to him will form a fairly attractive base for renewed appreciation.

Excerpts of CNBC-TV18's exclusive interview with Mark Cliffe:

 

Q: Let us just talk about the currency first, how you have read the kind of policy recommendations that have come in and whether that would change your call on the rupee?

 

A: Well I think certainly yes. Obviously, foreign investors have been rather shocked by the events of the last few days. I think there is a general expectation, as we have been hearing from your other guests, that the Indian markets will be suffering from some volatility over the next few weeks. This is bound to put some downward pressure on the currency, which is after all I think what the policy makers were hoping to achieve.

 

Q: Do you have any reservations against the way it's being done though, because some foreign investors have expressed their apprehensions about the modality of doing it?

 

A: Well I think you have got to have a lot of sympathy with the authorities here because, essentially they are the victims of the economy's success, and in other way the victims of the failure in the US, in the markets there.

 

In other words, we have seen a lot of cash moving out of the developed markets, not least the US, looking for more attractive homes. India has been identified as one of the prime suspects as it were, and the authorities are having to cope with this massive influx of capital, a lot of it obviously short-term speculative money.

 

I think in that respect, it's very difficult to fine-tune these things. The sheer scale of the money flows these days is such that anything we do is liable to lead to some kind of an overreaction. So, I have to say I've got a lot of sympathy with the authorities in trying to manage this particular process.

 

Q: What do you think is the longer-term trend for the rupee, despite whatever these near-term moves may succeed in achieving?

 

A: Given the economic success of India, I think we are looking at a structural appreciation in this currency. So, all of us will be aware of that. So, any pullback in the currency of any significant magnitude has got to be seen as a buying opportunity.

 

Of course, it depends on how clever you want to try and get in terms of picking the bottom. Our call from our local economists here is that the rupee will go to 40.50 in the near-term. I think that probably will form a fairly attractive base for renewed appreciation over the course of the coming year.

 

Q: There is the expectation that there might be some changes to this draft policy. What would you want to see by way of a tweaking and do you think that might temper this?

 

A: Inevitably foreign investors would like anything that makes it easier for them to get into the market, after all they want to be in it. That's been the message over the last few weeks. So, anything that helps to liberalise registration, I think will be very warmly received by foreign investors.

 

But herein lies the dilemma for the authorities. We started with them wanting to restrain these inflows. So, striking the balance between keeping the foreign investors happy and not having too big an influx of capital is going to be a very tricky one over the next few days and weeks.

 

Q: As you pointed out, the concern is capital inflow and moderating that. What do you expect the other policy maker, the RBI, to say when they meet?

 

A: Our call is that they are going to sit on the sidelines. I think to some extent what we have seen in the stock market and obviously in the currency market, is doing the central bank's job for it. So, I think they are going to sit on the sidelines, see how this situation unfolds, before they take any steps on domestic monetary policy.

 

Q: What is your sense of how much this will achieve in cooling capital flows into India? What's the sense of the kind of appetite you are seeing globally for a market like India, and whether such appetite will overwhelm any of these short-term measures which could be coming in eventually?

 

A: I think it's fairly clear that international investors have developed a very strong appetite for Indian assets. Obviously in terms of their relative attractiveness compared to other emerging markets, they still look very appealing when one looks at what is happening elsewhere in Asia, I'm thinking particularly here in China, then India does look attractive on a valuation basis.

 

It's a good growth story. It's perhaps somewhat more insulated from the storms in the US and other markets as well. So, that story remains a very positive one. It's really a case of whether the policy measures that are being taken here cause a significant interruption and people start to question whether the authorities are moving generally, in a structural sense, in the right direction towards liberal markets.

 

I think in the end, the conclusion to that debate will be a positive one. But right now, of course, there is a lot of question marks which the markets are facing.