FIIs see India as a stable invst destination: Blackstone

Here is a verbatim transcript of the exclusive interview with Punita Kumar Sinha on CNBC-TV18. Also watch the accompanying video.

Q: What was the big reaction in honor of yesterday? It is because global investors believe that political uncertainty is out of the way or India needed to play a little bit of catch up with other emerging markets (EM) in any case? 

A: I think it's both. First, the uncertainty amongst the foreign investors and investors in the US, was that there was a lot of concern over the fragmentation happening to Indian politics. They always compared India to China and felt that India was not able to keep up its growth because it is not going to be able to implement due to lots of opposition at the center. Unlike China which was able to push through reforms more cleanly. That worry is getting lifted and so people are going to see India, at least from a Foreign Direct Investment (FDI) point of view or Foreign Institutional Investors (FII) point of view as a more stable place to invest where they do think that the government might be able to do what is required.
The valuation premium, clearly, if you look at 1991 to1994, India used to trade at 20 times multiple. Now, it is trading at 14 times. It is line with other regional markets, but there was a time when it used to trade at a premium with other markets. So, probably for a short period of time it could go to a premium with this euphoria. 

Continued on next page _PAGEBREK_ Q: From FIIs perspective what kind of expectation do you have both for this market and what might come in by way of policy changes?

A: I think on a very short term possibly yes, but in the long term it depends on whether the government is able to deliver on the expectations that are now in place. Because a lot of reforms that have been on hold in the last several years are necessary to get done and if the government does not execute those, there could be quite a bit of disappointment. I think it is important that the budget that happens in June-July is a good one and reassures the markets. I also think the big concern is the fiscal deficit and the government needs to address that quickly. 

Q: Any specific point that global investors like you would be looking out for or any specific expectations that would have from the government in the next 30-45 days?

A: As I said I think the government has won because rural Indian population of India has been quite happy with what they have done, but to keep them happy they have to keep spending more in terms of pro rural programmes. That requires funding money. So, they don't have too much choice. They have to privatise, divest some state assets, allow FDI in some sectors. Otherwise how will they get the money to finance all this growth? So, I think they don't have too many choices and they have to implement some of these measures fairly soon.

Q: Aside from the upward momentum though the question everyone is asking is whether or not our market has made the durable bottom and seen the worst earlier this year?

A: I think for the short term, yes, but for this to be sustainable long term, two things have to happen. First, global economy has to show signs of improvement. If there is another leg down in the global economy, India cannot continue to move in its own pace because that liquidity would get impacted. Risk appetite for all markets might come down again. Second, sustainable of the reforms. Right now, it is conceptually looking great, but things have to be delivered and execution is very important. I think these two things have to happen. And finally if markets continue, if you go back to 1991 and you look at a period of 4 months, the markets were up nearly every day for four months, very strongly, almost doubled and then it crashed. While we may see some of the same stuff short term, the key is, are people willing to chase in this euphoria or will they wait for some correction to build positions or wait for some more global signs. At the moment it looks like everyone wants to chase, but I don't know how long. 

Continued on next page _PAGEBREK_ Q: What is going to happen on the global side you think?  So far we have had a great global rally. India has caught up after this event of the last week? Do you see global markets holding there good constructive shape going forward?

A: I do think there are signs of global troughing. China has spent huge amount of money, trillions of dollars both in investment side and stimulus and so there is pick up in demand in China and that's being very important to help pick up demand in some commodities. So we have seen some commodities rally as a result. In the US home prices in a couple of key areas bottomed out. Some kind of pricing and sales improvement. Unemployment is high but the space of unemployment in terms of job losses is coming down a bit. The leading indicators, the Global PMI is above 50. So that is showing signs of recovery a bit. In China, it was the first country of showing signs of pick up and went above 50 and now we are seeing happen in other countries as well. Looks like the worst maybe over for now. But longer term again in a year or two out we do not know whether there could be another leg down in the economies. Some economists are expecting an L-shaped recovery after a V-shaped recovery. So there are definitely some signs of recovery but whether the US financial system and the global financial system are going to be completely out of the woods I do not know.  

Q: You have been investing for many years as a market. On the basis of valuations are you feeling comfortable about the levels we are at?

A: I mean we don't give targets. But before the election the markets were trading at 13-14x with just an expected earnings growth over 12 months somewhere between 5-10%. But after the election results, on hopes that the government will push reforms, earnings are getting upgraded by analysts across the board. That means if the government delivers on infrastructure, banking and insurance reforms which is the most widely expected, that earnings can get upgraded and we could see earnings growth higher than 10-15%. Morgan Stanley just raised their gross domestic product (GDP) forecast for India is estimated from 5-odd to 6-odd%. There is a lot of upgradation happening and if we are able to follow that path that is expected then yes earnings growth valuation there is likely a re-rating.