The structural story of India remains unchanged, says Manish Singh, chief strategist & head of investments, Crossbridge Capital LLP. According to him, the fundamental story about the US Federal Reserve raising the interest rates is no where close and therefore, markets are unlikely to get affected. He does not see US central bank hike key rates before September.
In an interview to CNBC-TV18, Singh says European market will continue faring well as euro remains weak. He believes China will not meet growth target without stimulus. Below is verbatim transcript of the interview:
Q: Greece has now finally made good on its payment but there has been so much back and forth before that. They have asked for war damage from Berlin, there is also growing their proximity to Russia. How will things actually pan out? Is this going to be enough relief, the fact that they have made good on their payment? That index rallied by about 26 percent this week. How are things going to move from here?
A: Yes, Greece finally made payment due to the good payday for International Monetary Fund (IMF). Prime Minister Tsipras’ trip to Moscow was more symbolic than anything else because you will see that when he returned or when he did a press conference he said that he was looking for a solution within the Eurozone. So, that still says there have been questions about whether they will carry out reform and to what extent.
You will see from overnight news that they have got a fixed date deadline to present new set of reforms. So the conversation is going on. And for the larger European market, yes, the European markets are doing well and this is primarily down to the quantitative easing (QE) effort that we are seeing from European Central Bank (ECB) and that is likely to continue. So, European market will continue to fare better as Euro gets weaker and weaker.
Q: It is not just Europe; even emerging markets are doing quite well. So far in 2015, European industries have rallied close to about 25 percent. Shanghai too, has seen a rally of 25 percent. Hang Seng, Nikkei have rallied about 15 percent in 2015. In that context, the Nifty or India’s rally of about 5-6 percent so far this year, pales in comparison. Do you think India will be an underperformer compared to the European markets as well as the emerging markets this year?
A: If you look at the Nifty and compare it from summer last year, we have had more than 35 percent gains and almost five times the Nifty has fallen by over 5 percent. What you are seeing in Nifty is volatility, but the whole structural story about India does not change and I will just bring it back to something which is fundamental.
If Prime Minister Modi is looking to urbanise then that will boost the gross domestic product (GDP) and that is where the impact comes about with respect to the Land Acquisition Bill, you have to build roads. So, you are going through a structural reform and that story continues. Maybe it is looking as a slight underperformer this year, but I do not expect that to continue for a long time.
We are seeing a good emerging market rally as well. In China, Japan also we have seen not an emerging market rally, but a rally depending on the weakness of Japanese yen.
The fundamental reason is that the whole theory about US increasing rates is not there anymore. They will increase rates, but probably it will be in September if only to say that they are not boxed in a corner and they can increase rates. But the fundamental reason is that the whole rate rise story and rapid rate rise story is not there. Emerging markets should be a beneficiary including India.
Q: Also, just this morning the data out of China shows that their consumer prices have remained flat, wholesale prices are still in deflation mode. Would this suggest to you that further government stimulus would continue in China and how would that affect the region itself?
A: Absolutely, I agree with you that there will be more stimulus. And that is the precise reason what you have China, that the investors have become very clever. They have tried to front run the policy makers.
Every time you have a weak data and you know that the government is going to follow up, you will have people rallying into the market. Now, that is different from what is happening in Hang Seng index as you have mentioned is a big rally. That is because of a policy change in China which has allowed the mutual fund to invest into Hang Seng market and as you will know the Hang Seng, the same stock listed in Shanghai and Hong Kong, the one in Shanghai trades at a premium. So, that is what you are seeing that this arbitrage of really buying Hong Kong stocks because you that the discount is going to come down. That is what you are seeing in the Hong Kong market.
But again, yes China do stimulus, I do not think that they are going to meet their 7 percent target without doing stimulus, without doing reforms. And two fundamental things as we have seen China announce is about the interest rate policy liberalisation.
It is a larger story that China is looking to move ahead on structural part and also they are looking to do more stimulus including rate cuts from Central bank of the Republic of China (CBOC).
Q: How soon we might hear about the stimulus from China and is it factored in completely?
A: It is not factored in but the news that we are getting from policy makers including the speakers from CBOC and from government is that they want to achieve this 7 percent growth. You cannot achieve this 7 percent growth if you see some of the numbers, the lending to real estate and housing has decreased as well.
You saw that China did a policy reversal where they allowed people to buy second home and they have decreased their requirement from 60 percent to 30 percent. So, you are seeing the reforms coming from China and I believe they will continue because they have to achieve this rate to meet the targets that they have set.
Q: What is happening in the crude market, the negotiations of the nuclear deal with Iran have hit a road-block yesterday. So, the head of Iran has said that the economic sanctions must be lifted as soon as the accord is signed and Iranian military facilities are off-limits for international inspection; something which is not going down too well with at least the US counterparts. What has baked in into the crude prices? Is crude completely discounting that a nuclear deal will be signed by June as per the dead line and if it does get signed, what do you foresee in terms of crude prices?
A: If you see the comments from yesterday and last week, it does look like this deal is really being put together by a sticky tape which is not very strong and you have major doubts about it. I doubt that a full deal will come through. Therefore, I am less concerned about the crude price falling.
With respect to Iran, its supply does come onto the market, then crude price will fall but there are big doubts about it. However, what you are seeing and not least from the mergers and acquisitions (M&A) stories that we are seeing that Royal Dutch Sell buying BG Group, that there is a big consolidation which is going to happen in the sector.
If you are an equity investor in energy stocks, you are likely to do well. Crude prices do not have a huge down side, but at the same time I do not see crude prices rallying too much. The Iran factor to me is still, the jury is still out. I will not get concerned about it until June or after when we get more information on that.
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