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Last Updated : Feb 04, 2015 06:09 PM IST | Source: CNBC-TV18

India overvalued, but rally will continue: AMP Cap

In an interview to CNBC-TV18, Shane Oliver says the world outlook looks better than it did a month ago since the rebounding of crude prices is aiding US stocks and the QE in helping Europe recover.


The fall in crude prices tecnically suggest it is oversold. So the surge in oil prices — it touched one-month on signs of output cut, was due, says Shane Oliver, Head Investment Strategy & Chief Economist at AMP Capital Investors. In an interview to CNBC-TV18, he says the world outlook looks better than it did a month ago since the rebounding of crude prices is aiding US stocks and the QE in helping Europe recover.


From emerging market perspective, Oliver is skeptical of Russia and Brazil but emphasizes that Asia is a hotbed of opportunities and puts the spotlight on India. Despite being overvalued, India keeps going on, he says adding a lot of strength in these markets are coming from US markets.


Below is the transcript of Shane Oliver's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: What is the sense you are getting? We did see a bit of a growth scare, do you think oil finding a bit of a bottom is for good now and we are going to start to see a little more risk appetite?

A: It is hard to tell. It had fallen so far that it had become technically oversold. It was getting due for a bit of a bounce and certainly building a base around USD 45/barrel a level. So yes, we have seen a good bounce and there is a chance that we are seeing the low and that does seem to have taken some of the pressure of the US share market, for example, concerns about the impact on energy produces. So there is a good chance that we can see a bit of a further rally in US shares. In the meantime Europe is benefitting from quantitative easing (QE) programme and so globally the outlook looks a little bit bright than it did a month or so ago.


Sonia: Is the outlook brighter for developed markets compared to emerging markets for the first half of the year at least?

A: I tend to think of emerging markets these days as they are individual countries and I still remain very sceptical about Russia, I am sceptical about Brazil. I think both of those countries and particularly South America have big economic problems, which will make life a little bit difficult over the years ahead and therefore I tend to think that if you are going to focus on the emerging world, the place to be is probably Asia. Then you have got India, which is continuing to do reasonably well despite being relatively overvalued -- I have been saying this has been overvalued for years now, but it keeps on keeping on. And then you have got China on the other hand, which had a great run last year and it is not as cheap as it used to be but still relatively cheap. But Asia I think is probably a bit going for the emerging world and I think yes, if there is a bit more strength coming out of the US then that should flow through to the Asian markets as well.


Latha: How are you reading the commodities scene for all of calendar year 2015 or even the first half? Have we seen a bottom, will commodity prices stabilise, metals, crude everything, will they stabilise, have they found the bottom and linger at these levels or are we just going to see the technically oversold positions getting conquered and they will plumb further depths?

A: I think more a case of the latter but my feeling is that the commodities are now in a secular bear market. It has gone from a situation of undersupply last decade, now you have got a situation of oversupply for many commodities and there is more downside ahead for most commodity prices whether it is energy or metals or iron ore and that sort of thing. So yes we have seen a good bounce. Partly that bounce is related to the US dollar. So the US dollar has come off a little bit in the last day or so and that has enabled the commodities to bounce back because commodities tend to be priced in US dollars and that bounce could go on for a little bit longer but I think the broader picture is still a negative one for commodities going forward. However, it may take a while for that to resume. This rally we are seeing at the moment could go on for a little bit longer weeks or months but ultimately as we look into the second half of the year end to 2016, I think the downtrend in commodity prices will resume. So I would play any rally in commodities as this is just a technical bounce rather than playing a longer-term trend.


Sonia: Do you think the euro zone worries especially those with respect to Greece are now out of the way after that debt-swap plan has been put into place?

A: Probably not. I think there is a long way to go before both sides of the debate around Greece can find a compromise.

The Greek finance minister did sound a bit more constructive last night in terms of swapping the nature of Greek debt into perpetuities and growth bonds and all sorts of things, which is a bit more positive in terms of his commentary. So that I think is positive sign, that is probably why European markets rallied overnight. But I think there is a long way to go before they finally agree on this. I think at the end of the day, Greece is not the worry that it was in 2010-2011 and 2012, the rest of Europe peripheral countries Spain, Portugal, Holland and so on are in far bit in shape now. At the same time you have got European Central Bank doing quantitative easing, which explains why bond yields are down around record lows. That suggests to me that one shouldn’t be too worried about Greece. Any dips that occurred out of Europe on the back of that, I would say, is an opportunity to further increase the allocation and overweight position in European shares.

Latha: We are in a bit of a mess with respect to our gross domestic product (GDP) numbers, there is a new series that has been put out by the statistical office and we are not quite able to come to terms with it because it tells us that last year we grew at 6.9 percent, a little difficult to believe but I don’t know if you look at those numbers at all, more importantly how are you looking at both growth and inflation going ahead?

A: As far as those numbers are concerned, I thought it is a bit too good to believe. I can understand that in rapidly growing countries like India, the services sector in particular is underreported and new businesses are underreported and so we often get these upward revisions. So I am not surprised there but 6.9 percent does seem a bit too strong for me.

India I think looks to be better these days, it went through that more difficult phase in the one after the election, you have had the election, a reformist government was elected, they are taking the wall to get the reforms through but they are gradually coming through and at the same time the Central Bank governor seems to have established a fair degree of credibility with the inflation coming down. That should clear the way for further interest rate cuts in the months ahead even though he didn’t do anything yesterday. These all are indications that growth indicators might be bottoming out and should start to pick up. So the story for India is a more positive one, you have slowing inflation, potentially lower interest rates and improvement in growth, which should help push further. Going into share market, the issue is that the P/Es, the valuation measures are all quite stretched compared to the rest of Asia. But looking at the numbers, the earnings growth numbers coming out of India are better than most of the Asia’s anyway so there is a bit of offset there. So overall I am pretty constructive on Indian share market.

First Published on Feb 4, 2015 12:26 pm
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