Private Banks in India are partly a macro story but they are partly a story of taking market share from public sector banks. The way I look at it, the more dysfunctional the public sector banks are, the better the growth opportunity for the private sector banks because the public sector banks still have 70% share of the deposits. It is in that 70% of the deposits that the private sector banks can grow into. 

So, what is negative at the macro level, is a positive for the private sector banks. You can look at it two ways. One would hope that these various scams would ideally lead to more forceful policy to privatize the public sector banks and that will mean reducing the government ownership below 50%. That would be the ideal outcome from a free market perspective. My base case is that it is not going to happen. 

Housing finance companies: According to me, the policy on affordable housing, if sustained, should lead to affordable housing cycle of at least five years. 

Do you think in next 12 to 18 months, Indian cyclicals have a large scope to outperform? That is a real possibility but I would not put my whole portfolio on that because you have to be more comfortable about doing that. It is encouraging that it is starting to pick up but you could consider taking that bet if you saw a more clear evidence of the NPA or non-performing assets problem being resolved. We now I believe are coming to a head in this issue because my understanding is that there is a deadline of 180 days plus 90 days to resolve these NPLs. So, in the next three months, in India we are going to see if this resolution mechanism works or does not work. 

What about the real estate sector? RERA, the Real Estate Regulation Act, in my view is going to lead to dramatic consolidation in the real estate industry and will lead to vast improvement in real estate sector because only healthy properly capitalised companies can do real estate development in the residential sector. Therefore, you want to have long-term investment positions in those real estate developers who you believe have the expertise on the balance sheet to profit from inevitable consolidation which RERA would not trigger. According to me, this is one of the two key areas to invest in. 

View on the fear of trade war:  The trade war is an issue but my personal view is that Donald Trump just wants to get a better trade deal. This is not to be outright protectionist but if the Americans try and target China’s plans, there is nowhere the Chinese are going to agree to not prove the intellectual property rights. The Americans are concerned that Chinese corporates have been stealing intellectual property and in many respect they are right but that has already happened that horse has left the stable. Now, the Chinese are increasingly doing their own technology. 

On emerging markets: I am still bullish on emerging markets. The biggest risk for emerging market investors right now is that the S&P has peaked out and that monetary tightening causes a derating of equity valuations but that is if you are involved in the US stock market because the valuations are much higher. 

Bull market is far from over : I think India’s still in a bull market. What is significant is how well the Indian markets have done considering the way corporate profits are down. You can look at that as negative or positive. I look at it as positive because it shows how much better the stock market will do if the investment cycle came back. But the issue right now is the investment cycle coming back? But that will depend on if the issues in the Indian banking system gets addressed. If these problems do not get addressed, then this will become a negative.