View on India vis-vis Trump’s policies and threat to globalisation : If the US really does go ahead with the border adjustment tax and if it was applied to services as well as manufactured goods that would be a big negative for these outsourcing models but the fact is we do not know if it is going to go ahead with it or not. So it remains uncertain. But all this risk makes me want to concentrate on portfolios in Asia and emerging markets which are primarily domestic demand stories. My long held view remains that India is the best domestic demand story.
I am retaining a big weight on domestic demand stocks in India but I am not betting on IT, pharma stocks. I am betting on the capex geared areas and I am basically owning the domestic demand areas. These stocks are less impacted by any potential threat to globalisation. But it needs to be stressed that if the Trump administration does not go ahead with its border adjustment tax and if it is just a question of tax cuts to try and get the $2.5 trillion US corporate cash estimates outside of America, back into America, then that is not a big threat to globalisation. So the devil is in the detail in terms of the policies announced. As of today, it remains unclear.
You are overweight on India. Is it likely to remain this way or are you now worried about run up in Indian stocks and valuations looking stretched? Technically, there is probably a case to take some profits in some of these domestic names which have good runs but as this is a long term portfolio, I am not going to do big profit taking. I still think India is the best domestic demand long term story. I am continuing to focus in areas like financial areas, I am hoping and expecting that demonetisation will be a positive for the long term promotion of use of financial assets in India and I am taking the view that the demonetisation initiative is a positive not a negative.
On pickup in the capex cycle : I am not expecting a pickup in the capex cycle in the new fiscal year approaching in India and I have not got capex geared names in my portfolio and I would not be overweight on them. The only good news is that no one else is now expecting a pickup in capex in India in the new financial year. So, if that happens, it will come as a pleasant surprise to me and the markets.
Challenges which Indian IT companies are facing : From relative valuations, they are probably looking attractive but personally from a long-term basis, they are not in my core theme in owning India. Also we need to see what the US administration is going to announce or not announce on this whole issue of potential protectionist action, potential tax on outsourcing. Hopefully none of this happens but we cannot be sure.
One big prediction for 2017 and beyond and if you have to identify a mega trend whether local or global : My base case is that the supply side discipline will continue and that is a big positive for anybody involved in sectors such as steel, coal, etc, globally. The upstream sectors in China continue to improve because of this supply side reforms and as a result, the reported asset quality in the Chinese banking system will improve too. My story does hinge on the supply discipline continuing in China.
You are not very optimistic on crude. Why is that? In the last several months, Saudi Arabia did a total u-turn on its policy towards oil. It went from flooding the market to try and undermine shale to renewed production discipline and that strategy in my view is to try and keep oil above $50 in the run up to them listing their oil company. But the long term risk to oil is precisely because they are keeping oil up in the $50-60 range. That will mean that shale production in America will come roaring back. So there is going to be a dramatic increase in supply in the US and that means that in the long term, oil is going down again.
Indian equity markets : Well for the long term secular bull market story to be valid we will need at some point an investment cycle but for me my base case is we are in that long term secular bull market and if we do not get the investment cycle in the next fiscal year, I would be proved wrong. I hope it doesn’t come to that.
India
NRI
