Impact of demonetisation: it has not left the Indian economy extremely vulnerable. It has been a temporary shock. It has not been executed perhaps as smoothly and as painlessly as expected but at the end of the day, this is very much a temporary transitory aberration and the Indian economy will come out of this without any lasting damage and it is probably coming out of this ultimately in a stronger place than where it went in.
Time will show that neither Trump nor demonetisation will have any serious adverse fundamental implications for India in particular and so I think investors should view the underperformance that we have seen in Indian assets as an opportunity to add to exposures.
Do you find Indian markets attractive at current levels? Yes, I do. I like them both from the equity market and from the fixed income perspective. The demonetisation process will ultimately lead to lower inflation in the Indian economy and more easing from the Central Bank and that will support bunds while I think the economy is going to rebound in the course of 2017 and that should be supportive for stocks particularly in the banking sector and in the consumer sector which will kick in later in the year. I would still have a bias for fixed income in the early stages of the year but then rotate into equities in the course of the year.
I don’t see a lot of downside here. Remember that there have been some cold winds blowing through emerging markets in Q4. Mainly for reasons that have nothing to do with emerging markets themselves, Trump selection is one, Fed hike in the US, the Italian referendum, ECB tapering and the usual year-end positions squaring. I expect to see positive flows back into EM including into Indian markets at the beginning of 2017, which is not very far away.
I am expecting relatively modest gains for equities but nevertheless double digit returns, somewhere between 10 percent and 15 percent should easily be achievable for 2017.