India's organic growth rate makes it a standout: Benson Avenue

He doesn’t see the US Fed hiking rates in 2016. “I think the problem the US Fed has now with rising rate is they would be out of synch with Bank Of England.”

He also mentioned his pecking order in asset classes. He said it is time to favour equities. “There is a case for good equity markets. They outweigh the benefits of assets like debt, securities or hard commodities such as gold.”Below is the transcript of Christopher Palmer’s interview to Latha Venkatesh, Anuj Singhal and Sonia Shenoy on CNBC-TV18.Latha: Funds have rushed into emerging markets. What is your sense? Is this flow secure for the time being at least for the next several months?A: Investors have been on the sidelines for many months now, particularly with regard to risk assets. So, perhaps with some more policy, transparency emerging from the Fed and the post Brexit environment not being immediately as bad as people thought, it is no surprise that investors are pushing more into risk assets such as emerging market debt. So, it has got certainly more to run.Anuj: Do you worry about valuations in a market like India?A: Investors can take some confidence in India. India, certainly should remain right at the heart of emerging market investors’ portfolios simply because India does not have many of the growth concerns of other markets. India is not encumbered by any political problems or political relationships with some of the larger economies and India still has a fairly good earnings growth across a variety of sectors.So when investors look at a market, they can see that India stands out amongst markets because you are getting a more organic growth rate and still some elements of valuation recovery and some of the more depressed sectors. So, on balance, India should remain a favourite for most investors.Sonia: So, since yields are still at negative, they point to weak economies. But equities are indicating a very strong growth. Will something give at some point?A: What has got to give is that the negative interest rate environment at some point in the future has to reverse. You have seen a wide variety of experts at the Fed, even presidential candidates in the United States beginning to question the very low interest rate environment, whether it is necessary, whether it is doing more harm than good.Clearly, the equity market is pricing in the long-term and the valuation of these public and private companies. The bond market is unfortunately still heavily influenced by central bank policy, which is not at the current moment being set in many of these markets such as the Euro or with the European Central Bank (ECB), the Fed or in Japan by market forces. So, the distortion in my opinion lies clearly on the fixed income side.Latha: So, what is your take on the Fed then? Might they hike rates in 2016 at all?A: I have been on the record saying that I do not see a rate hike this year, in 2016. One of the problems the fed has right now with raising rates is that they would be dramatically out of sync with the Bank of England and what will emerge from the G20 conferences, right now in terms of policy makers is a concern that the United Kingdom not be left out of the loop in terms of a co-ordinated rate movements.This could have some further destabilising effects on the pound. That is a policy concern for certain elements within the Fed. However, that aside, it does appear that the debate has become more balanced for a rate hike within 2016 and the odds of a 2016 rate hike have now improved to about 50-50. So, this is a change on my part.Investors are becoming more comfortable with the idea that if it was not for this issue of the Bank of England, perhaps moving too quickly, post Brexit, the Fed would be in a better position to raise rates.Sonia: So, what is your pecking order amongst the asset classes globally and what is your pecking order within equities itself for the next 6 months?A: In financial markets, there is absolutely no question that now is a time that favours equities, particularly if you can buy equities with decent balance between growth and income potential, that is a good way for investors to maintain some income in a very low interest rate environment or even negative interest rate environment. There is a good case for growth in many equity markets. So clearly equities outweigh the benefits of owning assets such as debt, securities or fixed or hard commodities such as gold.When you move away from that and you look at equity markets globally, clearly, investors are going to go where they see the growth opportunities perhaps the most transparent opportunities for growth, the most transparent opportunities to invest in companies, which have a decent outlook backed by good underpinnings of macro economics.So, when you look at rankings globally, the United States still remains a favourite market for global investors and certainly that market has led the way and then within emerging markets, India certainly remains my top pick for emerging markets on a combination of macro drivers and other drivers. However, we are beginning to see the first rumblings of perhaps better returns out of China as well and some other risk markets where people are willing to dabble in some lower valuation opportunities such as in Eastern Europe.But emerging markets in that global mix are beginning to arise in importance and as always, after a period of rising returns in emerging markets, most investors find themselves underweight. That is typically, technically a good position for markets to be in. Investors are underweight and yet, they are observing that there are rising returns. So, that usually means that the game will carry on.