India is most favourite em in our portfolio, even more than china

1. India is Most Favourite EM in
Our Portfolio, Even More Than
China
A gradual increase in US Fed rates will not hurt India, says Sanjay Shah,
MD, Morgan Stanley India.

2. Contd..
How are foreign investors feeling about India now?
Typically, if you ask me, if there is interest in India over three or four
years, yes, there is. But if you tell me if there is a lot of interest to put
money over the next two months, possibly no because of the
correction you have seen in India.
Earnings are not showing any signs of a pick-up and people want to
wait to see a turnaround. So, I would think that we are going through a
period where there is huge interest in India but that may not
necessarily be followed by large overseas flows into the country.

3. Contd..
So we are going through one of those phases, which we go through every 2-3
years. So when you say that there is lot of interest in India we talk about
qualitative interest and people are not simply willing to put every single
dollar into the country at this point of time from a near-term perspective.But
if you ask me for a 3-4 year perspective, I see more interest and it is much
more than there ever was.
How exactly does MS see the money shifting once the (Fed) interest rates
start moving up?
Globally, there has been too much comfort of money being parked in long
bond funds. But as people get more confident about the economic growth,
money may shift from debt to equities but that would happen over a period
of time and gradually.

4. Contd..
What will be the India case once the Fed starts increasing rates?
India is one of the best placed countries among emerging markets. We
have right-sized our fiscal balances; current account is in control;
inflation is much lower than what it was in the past and foreign
exchange reserves are much higher than what they were earlier. So,
these four parameters are going in our support.This means that even if
there is volatility, India will be less vulnerable than most other
emerging markets.
Another joker in the pack is China.Is it good for India if China slows
down in terms of generating stock market returns? Or is there enough
room for both India and China to together attract flows?

5. Contd..
There is room enough. I do not think there is either of the two to choose. I think people
need to differentiate and not put all the emerging markets into one bucket. Had we spoken
some 10 years ago, emerging markets were just a single asset but now we need to
distinguish within the emerging markets. Brazil and Russia are very different from China
and there are many different factors influencing India, its economy and market
performance.
But do you think that break-out has happened?
I think it may take a few more years to happen completely. People have started recognising
that all markets are different. But that does not necessarily mean that people have started
investing differently. In the last two years when we saw continuous outflows from
emerging markets, India continued to get inflows. But now when China and Taiwan have
got much inflows, India has still got modest flows. It has not got a very large share. I
suspect that differentiating between emerging markets is somewhere on a middle path
and people have started recognising that all emerging markets are different and that some
economics are diametrically opposite to each other.

6. Contd..
We have the best business model that we run throughout the emerging
markets. It comprises 28 or 29 companies and the largest representation is
from India with some 11 companies. So, out of the entire emerging markets
if you take best business models, almost 40% are from India. That is the
reason why overseas investors continue to invest in India.
Are you seeing flows coming in only from India-specific funds?
What about macro funds?
Not yet. Country funds may not be as much in vogue as of now. But that said
some bit is flowing but it's not large. What is inspiring is that domestic funds
are getting more money . This is not the right time to play beta in India.

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(Founder and C.E.O of Saxbee Consultants & Other-Mother
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