Even as there have some signs of the government's reforms thrust slowing down, foreign investors are willing to be patient with Indian equities and the current administration continues to enjoy a huge amount of goodwill from them, according to Manish Singh of Crossbridge Capital.
In an interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar, the CIO of the UK-based investment advisory firm said that while some investor interest in India may have waned following the recent outperformance of the Chinese market, movements on bills such as the GST will serve as good news for sentiment.
Singh also commented on the Federal Reserve's interest rate move, saying he expected the central bank to hike rates in September, and not in June.
Below is the transcript of the interview on CNBC-TV18.
Reema: The recent Federal Open Market Committee (FOMC) statement has removed all calendar references. There is no guidance with respect to a timing of a rate hike. So, that has raised the possibility there could be a rate hike perhaps even in June. Do you think it is a valid possibility?
A: I would say that I do not expect June rate hike. I am still sticking to my call of there will be a September rate hike. Though if you look at the forewords and the treasury rates in the market, the expectations are of an October rate hike. So I still believe there will be a September rate hike. Of course the statement yesterday from FOMC was slightly hawkish or too neutral, I should say because they did say that some of the reason the economy is slacked because of transitory factors and they made reference to rail income grow strongly and consumer sentiment remains high,
So, these were two positives but then you will also know that we got the Q1 gross domestic product (GDP) number yesterday which was well disappointing, only 0.2 percent increase. And even that there was a 0.7 percent contribution coming from inventory contribution, a raise in inventory. So, on balance I do not expect a June rate hike, I expect 25 basis point increase in September and maybe that is going to be for the year.
Latha: I want to know whether the trends that we have seen in 2015 so far in terms of movement of smart money continues. What we have seen is an outperformance of emerging markets over developed markets and what we have seen is within emerging markets, Chinese out performance and Indian under performance. Do these trends continue?
A: I would say that it is a valid point. With respect to India we have to remember that a lot of positive performance was based on sentiments. Now, these can change quickly is the communication is not very clear. So, as we are seeing from, and you know this very well, with respect to the minimum alternate tax (MAT) and also with respect to the reforms which there is slight fear that it might get stalled or get delayed.
Now, you have to remember that in emerging markets people look on relative basis. So, if you have another market which has come up as an attractive market and I am talking about China where suddenly the whole Hong Kong, Shanghai connection and the Hong Kong connect may happen as well and there are cases of there might be opening of connection between Taiwan and Shanghai market as well.
Then suddenly you have an alternative to move your cash until such time you think that the sentiments will again continue to be positive and reforms will still be on track. So, that is what you are seeing, a bit of rotation from market that people taking profit and moving into the market which is badly performing and then benefitting from it.
Latha: Do you think investor patience has run out? From what you are saying it is only temporarily run out as far as India is concerned. By when might investor patience run out more sustainably you fear say if earnings don’t pick up by the second quarter, by the third quarter – I mean by the September quarter or December quarter?
A: I would say that patience is still high. The investors will be patient. Portfolio flow may not be because some of them are very fickle and they may change their views. However, having said that I was in Washington two weeks ago and the goodwill around the Finance Minister’s talk and Finance Secretary talk, there is huge amount of goodwill. People are not losing patience and long-term investors will be patient.
Short-term investors will keep rotating the money but there is still a huge amount of goodwill in terms of what the government is saying and what the government is doing. Everyone understands that it is an uphill task convincing the opposition to go through the reform. However, then we heard some positive news about that there might be a compromise on goods and services tax (GST) which is a very good thing in the sense that government is reaching out to the opposition parties and trying to strike a deal. We want to see more of that happening and more of that happening sooner.
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