FIIs looking at India as a long-term story: JPMorgan AMC

The Indian markets has witnessed decent rally this year. A lot of foreign institutional money has poured in. In an interview to CNBC-TV18, Geoff Lewis of JPMorgan AMC says 5.5% (Q1) gross domestic product (GDP) growth is still very good, when one looks at the Euro zone economies, the UK or the US in comparison. According to him, foreign investors are looking at India as a good long-term secular story.

Below is the edited transcript of Lewis’ interview with CNBC-TV18.

Q: It has been a very weak close for the Asian markets, Korean markets closed at the low point of the day a cut of about 1.7%, Hong Kong is down about 1.5% and Indian markets as well are down about 1%. What's spooking the Asian markets and Europe opened on a quieter note?

A: We have seen that markets have lost their enthusiasm for the rally over the last couple of weeks and have edged off a little bit. Recently, except for Indonesia or Thailand, the economic data coming out of Asia has been quite weak.

We have seen some quite big downgrades to growth forecast for the more globally dependent Asian economies. That’s a reminder I think, that there is no part of the global economy, which is doing well at the moment. Of the 50 PMIs that we look at, only about six are in positive territory right now.

Q: How would you approach the Asian markets in particular India? We saw a smart outperformance coming in India if you looked at it year to date despite the fact that the economy has been downgraded or GDP estimates have been downgraded with each passing month, 8 to 7.5 to 6 to 5.5% and may be even 5 and 4.5% by some brokerages. Why this dichotomy, is it only because others are worse?

A: There is a feeling that we may have seen the trough with regards to the real economy even if it doesn’t really accelerate rapidly. Also, 5.5% GDP growth is still very good when you look at the eurozone economies, the UK or the US in comparison.

What's surprising is that foreign institutional investors, there money that’s come into India in the last year or so has proven to be quite sticky. It hasn’t retreated in any size.

They are obviously looking to India to get over these problems and to get back on track. That is pretty much what you have seen in previous periods when large inflows have come into the Indian market from overseas.

There have been outflows, but they have been much less to the amount of money that’s come in. Foreign investors are looking to India as a good long-term secular story and we wouldn’t disagree with that you do have some macro challenges at present.

Q: Would you expect the flows to continue in 2012 in the next few months as well?

A: I think so. The flows are picking up as people get tired of the eurozone crisis and as it seems maybe the ECB will do enough to backstop the crisis and stablise the situation. As long as the US is continuing to grow and China doesn’t slow too much further and starts to really pick up maybe the fourth quarter or the first quarter of next year, then we will see more money coming into the larger emerging markets because they are doing relatively better after all.

Q: Everyone is watching out for the ECB, what are your expectations from the ECB tomorrow and how might the global markets react to that?

A: It is always difficult to predict these policy measures. That is one of the problems with markets is that they are so prone to move on every policy announcement. The ECB has promised quite a lot in advance. Certainly there will be disappointment if Mario Draghi does not move someway to fulfilling that backstop role.

Q: One of the characteristics of this risk off has been that equities have got it on the chin so have to some extent currencies, but commodities have held out fairly strong. They are relative outperformers in this risk off that we have seen, is this entirely a QE expectation thing or do you expect that commodities, crude in particular but gold as well and metals could see a breakdown from hereon?

A: The commodity complex, it’s quite diverse and you have to look at the different types of commodities driven by different factors. Oil is been very firm and risen over the last couple of months partly because of geo-political concerns between Israel and Iran rather than the physical supply situation.

Gold benefits whenever there is heightened macro uncertainty. Other commodities, industrial metals, etc they have come off quite a lot anyway and probably are in the process of bottoming. So, you can’t look at commodities as a single homogenous group.