India has become more attractive than before, even more favourable than China, says Jim Walker, MD, Asianomics citing his bullish tone on India. Having concluded a 3-year consolidation phase, he anticipates another 20-25 percent growth in Indian equities.
According to him, Finance Minister Arun Jaitley is well on course to meet fiscal deficit target of 4.1 percent of GDP. People will be surprised at how low inflation can go in 2015, he says in an interview to CNBC-TV18.
Meanwhile, modest growth figure will give Reserve Bank room to cut rates quickly. However, he does not expect any rate cut in December 2 policy but sees 100-150 bps rate cut in 2015.
The recent additional plunge in crude and oil prices is another shot in the arm for India, he adds.
Below is the verbatim transcript of the interview:
Q: Does India just become a little more attractive after the events in Vienna yesterday?
A: Yes, I have started to believe that India could become any more attractive than it already is - yes of course, with crude oil prices where they are and seeming inability for Organisation of petroleum exporting countries (OPEC) to cut their supplies then I suspect would give more downside to the oil price which is exceptionally good news for India generally.
Q: India’s import bill can now meaningfully declined because of the fall in crude so do you think this will help the finance minister meet his fiscal deficit target of 4.1 percent of GDP?
A: Yes. I am sure that we are pretty well on course for the fiscal deficit target, not so much because of the falling oil price. By the fact that the government has already eradicated subsidies on diesel given the fall in prices but those subsidies have gone and there has been progress in cutting subsidies elsewhere and of course we are now at the cusp of an upswing in economic activity in India which is going to help the financial position of the government anyway. So I think that is pretty much on course.
Q: What is your estimate of the GDP number that will come out later today but more generally what is the growth forecast for the FY15 itself and connected to that what do you expect governor will do on December 2?
A: Yes, I would not be looking for a huge figure for the GDP number today. I think we saw surprisingly strong number for Q2, I wouldn’t be surprised if it will be a bit below of Q2 number. From Q4 onwards of 2014 into 2015 is when we expect to see the business cycle swinging upwards. So it is relatively good if we had modest growth figure because it would certainly allow the Central Bank to cut interest rates more meaningfully and perhaps more quickly than it currently intend. I am not sure whether they will cut interest rates in December, I hope they do but certainly through the course of 2015, we are looking for between 100 and 150 bps worth of interest rate cuts in India and will easily be able to take given where inflation has trended.
Q: Would you be terribly worried or upset if the rate cut didn’t come in December and the governor chose to wait till February because there is a base effect to the consumer inflation for the October-November numbers? If the rate cuts were postponed but his language turn dovish quite clearly indicating what he might do later on, will that still keep India attractive?
A: Yes, I think so. The main thing about India is that it has gone through a three-year consolidation phase where economic activity has not been good, businesses have been cutting capital expenditure, they have been repairing their balance sheet and we are now entering a phase where the Indian corporate sector is in much better health, economic can start to grow again plus we have much more pro-active, pro-business government in place. Regardless of what the RBI does in the coming week, that is going to be the real key for whether or no people are putting investments in India and that foreign investors that I speak to are greatly enthusiastic at the moment about India and their biggest problem is finding enough companies and enough liquidity in the market to buy.
Q: In fact, we got a sense of that with the number of QIPs that have taken place in the last many days but how much do you think retail inflation could average in 2015 because of falling crude prices?
A: That is going to help. The key thing has been the control of money supply and credit that has been going on now for the last two-three years in India through the policies followed by Mr Subba Rao and kept on by Raghuram Rajan. So the inflation has been squeezed of the system because money and trade are being controlled. I am not worried about pick up in inflation in India next year at all, I think people will be surprised about how low it can go.
Q: Would you not be worried about growth also – when you look at lead indicators like auto sales or PMI numbers, the Q2 earnings were quite a disappointment across most corporate. When do you see growth meaningfully picking up for the first calendar quarter next year, second calendar quarter or even further down?
A: You may even see when the results of the fourth quarter calendar year 2014 come to an end by early 2015, I think the beginning sign of basing Indian economy have been evident now for the last three to six months, the upturn should come and overview from hereon. We are in a quarter where the economy will be coming up and next year be coming more meaningfully and of course if it can be supported by government policies that get businesses more confidence and more clarity about the future as well as bring through infrastructure projects and capital spending than set fear for us. A very very positive next two-five years.
Q: The indices have already gained 35 percent this calendar year. How much more can they run in the next 12 months?
A: I would expect certainly another 20-25 percent over the next year.
Q: Between India and China, is the argument still tilting in favour of India?
A: Yes, it’s tilting in favour of India. India just at the beginning of a business cycle upswing, China is still very clearly known. We see a global commodity prices and many other indicators from China that is in a very significant slowdown phase. I think it will probably start bottoming out in 2015 but then has a two years consolidation period, the same as we have just seen in India where we really start to talk about a business cycle upswing in China at the end of 2016 if not in 2017.
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