Latha Venkatesh of CNBC-TV18 caught up with Aswath Damodaran - Professor of Finance at the Stern School of Business at New York University.
Aswath Damodaran, professor of Finance at the Stern School of Business at the New York University believes that India shows most promise amongst BRICS nations.
"India is much more healthy than many of the developed markets are. So, on a relative basis, India looks good. Think of the BRIC, India is the healthiest, because Brazil is a fiasco, Russia is Russia and China is too large to keep growing at the rate that they have," he told CNBC-TV18's Latha Venkatesh.
He opined the dollar will stay strong regardless of what President-elect Donal Trump says.
“As rates rise, the Dollar strengthens, especially because its competition is weak. So, Euro rates close to zero, Japanese rate is negative. As long as those fundamentals hold, the Dollar is going to stay. So, you can try to talk it down, but it’s going to continue to rise.” he said.
Below are excerpts of the conversation between Aswath Damodaran and Latha Venkatesh on CNBC-TV18.
Q: Just over the last few days, we have got this scintillating change of events. Donald Trump has shouted down the dollar. It is a market determined currency, but he says it is too strong to be good for the United States and almost at the same hour, Xi Jinping was at Davos, extolling the virtues of globalisation. What does all this mean to you? The world looks turned upside down.
A: First we have got to step away from the noise because I think you are going to see this kind of phenomenon. It is not just from yesterday, you are going to probably see this a lot more over the next four years. But ultimately, we have to keep reverting back to fundamentals and what we discovered in 2016 is the power of stories over numbers. You saw it both in Brexit and there is a simple powerful story, even if it is not realistic will win out over a collection of numbers.
If you take Brexit for instance, every person arguing against Brexit use numbers to back it up. If you do it, this is what will happen. But the counter was the story. If you leave the European Union, we are going to go back to the old Britain. It might have been a story that was not realistic but stories beat numbers. And in a sense, what you are seeing play out now is how much that story telling affects markets. So, it is going to be interesting now.
Q: The commodity cycle. After a long, lean patch, what looked like a 3-4 year lean patch, we saw commodities bounce back admirably in 2016. Will that story continue in 2017 which will mean you must have faith in China?
A: That is exactly the point to make. Let us face it. We look at a 100-year history of almost every commodity. You will see the history from 1915 through 2002-2003, then you get this decade in commodities which is the China decade. You take iron ore prices, you take oil prices; basically, you went from an average price of USD 25 per barrel to a price of USD 80-90 per barrel. I think those days are gone. You are not going to get the kind of bump in commodity prices you got because that was an unusual decade. It was China building up infrastructure and buying up all the iron ore in the world.
That story is no longer going to – even if you are going to get a bounce-back, if you are a commodity company, do not expect oil to bounce back to USD 100 per barrel. Iron ore price are not going to go back to USD 80. So, whatever bounce-back you have will be a measured bounce-back. Those glory days of prices will go up 10-15 percent a year, those are behind us.
Q: The question I want to ask about India is demonetisation. What did you make of it?
A: I have mixed feelings. Let us just suppose demonetisation had happened and nobody had noticed. That would have been a sign that it did not work at all because if you truly have demonetisation, it should, especially in a country like India, there is going to be pain. That is almost a given. You are pulling 85 percent of the currency from circulation in a cash based economy, there is going to be pain. And the question that we still do not know the answer to is who felt the pain.
For the moment, it looks like the people who felt the pain were not the people who were expected to feel the pain. But we will not know. That is why I am going to hold back on my judgement on this because if it truly hurt, we are going to find out in terms of the long-term impact on some sectors which were primarily driven by black money. But, if they went into this thing expecting little or no pain, it is clearly unrealistic.
The fact that there was pain does not surprise me. The question is whether that pain was worth it in terms of actually pulling black money out of the system. I think that ultimately, people want to stop tax evasion. You have got to have an attitude change. You can have that shock to the system and try to get money out, but the attitude change you have to have is we have to think about people who pay taxes as the good guys and the people who do not as the bad guys. We have to think of paying taxes as a civic duty rather than something suckers do and if you are smart, you do not do it. And that attitude change comes from trusting governments with your money.
And second, feeling that this is fair. That is why Northern Europeans are such good tax payers. They feel the system is fair and they feel that when the Swedish and the German government collects the money, it is used well.
Q: One of the noisiest policy decisions in India is the Budget. Do you think the Budget can make a difference if at all and what should it do to make a difference?
A: I remember when I was growing up, the entire business world would shut down on Budget day because the fate of the economy was determined by what the Minister of Finance said that day. Who was going to be punished, who was going to be rewarded. And that is very unhealthy. An economy should never be driven that much by what one person says. So, I think the healthiest day for India will be the day when Budget day comes and goes and nobody even notices.
Q: You will have to admit that it is increasingly perhaps, more a media event and maybe the economy comes back or even the markets come back pretty quickly. But nevertheless, what can the government do at all since it is a day on which policy is under the lens?
A: I operate under the principle that less is more. So, it is better to do fewer things when you do them well than try to do everything. I feel that about taxes, I feel that about Budget policy, I feel that about trade policy because governments around the world have technocrats and experts who give them lists and lists of things they can do. I would rather they said these are the three things we are going to do because I am a teacher and I know this is something that I follow in my class. I walk into class, it is an 80-minute class and I say what is the one thing I want my students to remember after this class, not what are the 10 things because I have discovered that when I try to do 10 things, I do none of them well.
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First Published on Jan 18, 2017 01:17 pm