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Speaker: Mr. Sailesh Raj Bhan

Designation: Deputy CIO - Equity, Reliance Nippon Life Asset Management Limited.

 

Q.1 Impact of India’s GDP on international investments in India (00:10)

Ans – India is still the fastest growing economy in the world and growth is continue to be strong. In fact, it is recovering from the low base of GST, demonetization and the IBC code implementation. IBC resolutions are likely to drive a lot of investments in India. So, we are very confident of recovering growth which is visible from even the results which have come about in last 2 or 3 quarters where there is significant improvement in earnings to facilitate overall global investor interest. We are very positive on growth recovering in India and very confident of earnings recovery in next 1-3 years in India.

 

Q.2 Impact of high fuel prices on consumer stocks (00:50)

Ans – Increase in fuel prices is actually a global phenomenon. It’s basically movement of oil prices globally which have been substantially higher than normal in last 2 years which is being passed on to consumers. Rightfully, the government is not giving subsidies because fuel is a consumption item and if you give subsidies, you actually don’t create any asset in future for that. So, rightfully in the government strategy of passing on all the price increases to consumers I think is a rational strategy. In fact, this allows you to full price and reduce subsidies in your budget, maintain your fiscal deficit under control which is very important especially because you are in a first GST year where you normally have a little bit of challenges in terms of GST collections. Foreign investors generally want solid, macro and policy stability with the government is consistently following. So it’s not negative. Second, from consumer-driven businesses in India, rising crude price do have an impact, but please don’t see this as an impact equal to what they had in 2013. Of 10$ change in crude prices impacts petroleum pump level prices by about 5% or 5 Rs. So, it’s not a very significant delta. When we are already paying 80-85 Rs., 5-7 Rs. change doesn’t necessarily impact overall earnings growth. It’s an inflation pass through and we have to live with that change.

 

Q.3 Impact of emerging markets collapse on India (02:19)

Ans – It’s very interesting that India has outperformed even in this cycle of emerging market collapse which has happened. So it does reflect strong macro stability factors which I have talked to you about India despite high crude prices and little bit of depreciation in currency. Some of our depreciation in currency is also because of where the dollar has strengthened vs. every other currency. So relative depreciation is not very large in case of India. I think India is a stand-out candidate with an emerging markets.  So wherever there is macro uncertainty, the first impact comes to emerging market stocks. I think India is getting a little bit more differentiated than normal emerging markets because we have far more diversity of revenue stream, far greater institutional infrastructure in India which allows us to cope up with all these challenges.

 

Q.4 Possible headwinds and tailwinds for the Indian equity markets (03:09)

Ans – The visible challenges on macro side all of us are aware of today are sharp increase in oil price and associated currency depreciation. Currency depreciation is definitely a challenge but not to the extent as it was earlier in 2013. Other issues in near term would be obviously India enters into election year where we have state elections first and then we have after that the general elections. So when you enter into elections, you generally end up with quite a little bit more volatility than normal. Second you know globally there is lot of talk of trade wars and cross-country tariffs being imposed can it slow down global growth over a period of time. Third obviously the rising interest rates internationally leave very little room for following a low interest rate policy in India. I think these are the 3-4 variables you have to be aware of as an investor. Ideally investors in our judgement should take a 3-4 year call. So that some of these macro challenges automatically get resolved in that period. India is now getting into a sweet spot of earnings. So in next 1-3 years in India, it is possible that earnings will start delivering very well as seen in last 3-4 quarters. As an economy we could set to double our earnings in next 4 or 5 years.

 

Q.5 An advice for our equity investors (04:29)

Ans- I think investors should look at equities clearly from a 1-3 horizon. I think large cap, multi-cap strategies really delivered over this period of time. I think these are the good times to participate it. If people want to average out volatility which might be there because of elections, but please bring in only 3-year money and try to focus large and multi-cap strategies which we think will capture a lot of value or do offer a lot of value today and can be very good investment option for next 3 years.