Moneycontrol Be a Pro
Get App
Last Updated : Nov 10, 2016 04:12 PM IST | Source: CNBC-TV18

GST positive for India; Trump may bring in oil gains:Julius Baer

The introduction of Goods and Services Tax (GST) is a very positive move for India feels Mark Matthews of Bank Julius Baer & Co., who believes it will restructure the economy.

The introduction of Goods and Services Tax (GST) is a very positive move for India feels Mark Matthews of Bank Julius Baer & Co., who believes it will restructure the economy. 

Sharing his views on the US elections outcome, Matthews says market is increasingly looking at Donald Trump as a pro-growth President and although his world view is through a narrow prism of business and economics and he is not so much in geopolitics of things, "he is more of a deal-maker than deal-breaker" which might prove beneficial.

Factoring in Trump's plan of trimming corporate tax rates to 15 percent from 35 percent, earnings per share of companies in US should expand by 20 percent over next few years and that itself could help markets rally, he adds. 

For India, he believes Trump might bring benefits in oil prices as he might allow a lot more US oil production leading to price decline.

He expects the US Federal Reserve to increase rates in December followed by two more hikes in March and August next year. 

Below is the transcript of Mark Matthews’ interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: Event is out of the way and the markets have rallied a lot from the low point. Do you think this market can rally or do you see more volatility going forward?

A: It will continue to rally and the market is rapidly looking at Trump at being pro-growth president and less through the prism of his geo-politics. And therefore, if we factor in especially his plans to cut corporate taxes from 35 percent to 15 percent, that alone could add almost 20 percent to earnings per share (EPS) growth in the United States over the next few years. I do not see why the market cannot go higher.

Sonia: And is that your view about the Indian market as well because now it seems like our own markets will focus on domestic cues and we have many positive domestic cues going for us. The biggest one was what happened yesterday with the whole black money probe and the clamp down. Is that something that you have read into and is that something that would make you a bit more positive from our markets?

A: What made me most positive on India was the goods and services tax (GST) and I continue to think that that will restructure the economy in a very positive way. These things are all linked in a strange way. I do not know if it is the alignment of the planets and the moons or what, but it seems that around the world, governments are changing broadly in a way which is beneficial to economies and markets. And it started with Mr Modi and also in Indonesia and a few other countries in the world and now it has progressed to the United States and so, I do not know where it goes next, but many places in the world are becoming better run. Let us put it that way.

Latha: What is it from an India investor point of view that we should take away from Donald Trump’s speech and the economic philosophy he stands for? One part of the philosophy which is why stocks like Caterpillar went up looks like he is going to spend his way into growth, probably higher fiscal deficits, higher debt ceilings. Should we therefore see that as emerging market positive?

A: Broadly if we have the major risk assets of the world going up like the Standard and Poor (S&P), barometers of them, then the riskier spectrum which has historically been considered emerging markets should go up as well. I do not see any problems in the emerging markets on an individual basis to hold them back in most of them. And then, with India specifically, the oil price will be interesting, because although most commodities have risen, what Mr Trump will probably do is allow a lot more US oil production. So, there should be more supply of oil. That could keep the oil price down which would be good for India. And also, he said that he likes Indians. I do not know why. I guess the ones he has met, he has liked them. So, I do not see why we could not expect good relations between the two countries as well which never hurts.

Sonia: There were a bit of concerns that people had that Trump would follow through on some of those threatened punitive tariffs against China, against Mexico, etc. Do you think all those concerns are unwarranted now?

A: They are still warranted, definitely. I think that his world view is through a very narrow prism of business and economics and so, he is not so much into the geo-politics of things. So, what he wants to do is make deals and he is more of a deal maker than a deal breaker. So, when he comes in to negotiate, he will probably come in with a much more tough tone, but maybe Asians will appreciate that because maybe Asians are used to negotiating that way anyway. It is too early to say. But I do think that we will see trade deals re-negotiated. Will it be so punitive that at the end of the day, China cannot make any money selling anything to the United States? I doubt it.

Latha: What next from the Fed? That is the next big event to watch out for.

A: If you look at the futures, the implied probability of a rate hike is about 80 percent in December which is down from 84 percent before the election. So, people are still really expecting the Fed to go ahead and of course, we saw the reaction with the 10-year treasury bond above 2 percent yesterday and various measures of inflation have shot up dramatically. And of course, the move in stocks like Caterpillar speaks for itself. So, I would expect a rate hike in December. Probably another one in March and then in August of next year. Now, people are worried about Janet Yellen and Trump spokespeople have said that he does not intend to fire her, but when her chair comes up for renewal in February of 2018 that he will get somebody else which is an entirely normal thing for presidents to do. Presidents like to have Fed chairs who are from their party.

Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
First Published on Nov 10, 2016 09:12 am
NULL int(1)
Follow us on
Available On
PCI DSS Compliant