Richard Gibbs, Global head, Macquarie Securities believes Indian market is likely to outperform other emerging markets. According to him, Indian economy has the potential to get back to 7 percent plus growth rates from the current 5 percent.
In an interview to CNBC-TV18, Gibbs says 2015 is likely to be a year of uneven growth. He believes the Japanese economy is back in recession.Below is verbatim transcript of the interview:
Q: Would you second the view that 2015 at least the earlier part of it could indicate some global slowdown and how should an Indian investor approach that?
A: It is likely to be the case. We are certainly looking at a year of very uneven growth as well as potentially disappointing growth momentum in the number of jurisdictions. So that really says that we still have this underlying problem at work in the global economy and that is of low income growth and very poorest demand conditions.
The way investors need to be looking at this is those economies that will be best placed are the ones that have the greatest scope to stimulate and grow and broaden the domestic demand basis.
Q: How different is the world economic growth to what it was a month ago? We have very strong US jobs data, the European continent is a bit closer to quantitative easing, maybe full blown quantitative easing and we are getting some positive cues from Japan as well, China has started monetary stimulus, the news we are getting in terms of slowdown is only from the commodity exporting countries, how much does that mean to global economy, are you changing your view on global economic growth?
A: What has also happened in the last month is that the divergence particularly within the G4 economies that the major advanced economies has increased further and quite right, the US has increased its lead. But that has been at the expense of the other three economies particularly Japan, where the economy there is back in recession. That has been a concern in the last month and the euro zone, maybe close to the full blown quantitative easing.
I don’t know whether that will actually work because they are not any close to addressing their structural issues in that jurisdiction. So that has changed.
The other thing that has changed the course are the Chinese authorities and today the politburo acknowledging that they are shrinking to the lower growth targeting 2015 and that they are going to go much harder on structural reforms, which suggests that growth will be traded off before reform process.
Q: How does one approach India, there is an expectation that the 35 percent rise that we have seen this year cannot be replicated in 2015? How will the Indian market evolve in 2015?
A: There has been a bit of outperformance particularly in relation to emerging economies and emerging markets but the increase in many cases is one-time structural shift. Obviously the decline in crude oil prices in recent times will not be replicated. If it is, it will be down with crude oil prices at USD 110 per barrel.
There is no question that is cheaper or lower oil prices are going to add a tailwind to the Indian economy but the other important step will be ongoing structural reforms, supply side reforms.
Q: At the moment, are you buying India at current valuations and if yes, what are you buying?
A: We have been a bit more circumspect because it has run hard as you said earlier. But the focus is still on that structural dynamic shift in relation to the economy. Obviously on the infrastructure side that is in good hands with the structural reforms and the further build up that will occur on that side as we move forward. We like financial services to an extent helped by income growth and now, lower oil prices too.
The interesting one that we are still debating among ourselves is the interest rate sensitive sectors of the economy and whether or not we could reasonably position for an earlier than currently expected cut in rates.
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