Indian markets are at record highs. What is driving this rally? Is there more steam left in this rally, or will the party be over soon?
It is not just Indian markets—what is driving Indian markets is also driving other markets. There are massive amounts of money around, and it needs to go somewhere, and it is going into the markets. India is not the only one going through the roof—look at Europe, America. The central banks have made a lot of free money available—Mr (Donald) Trump has told everyone that everything is going to be OK, and he is come up with some policies which people think will be good such as cutting taxes and building infrastructure… That is why markets in many countries are going up—I think the party will end soon, but I am very, very bad at timing it.
Are Indian markets expensive at this point? Why or why not?
I don’t know the Indian valuations currently. The problem is when the markets start going down, it doesn’t matter if they are cheap, or expensive—all of them will go down. I don’t know of anything that is really cheap in India.
When and by how much do you see an earnings recovery happening for Indian companies?
That is one of the problems—an earnings recovery has not taken place and the markets are going up. This is a problem globally because there is a lot of free money and easy money, and then there is optimism about tax cuts in the US—that is the worry for me—that all of this is not real and is based on free money. Free money, while it lasts, is wonderful, but it always come to an end.
Where does India stand in your EM/Asia preference? Why?
India is not the preferred market for me—it is at an all-time high. I’ve told you before that I don’t prefer to buy when markets are at an all-time high. I don’t want to get on a moving train—when you jump onto it, you’ll get hurt. You won’t get hurt if you buy something that is ignored and sitting in the corner—you’ll not make any money for a while, but you won’t get hurt.
Will Donald Trump’s tax cut plans impact emerging markets in a big way? How much impact do you see on Indian information technology (IT) and pharma sector from visa restrictions and protectionist policies?
If it happens, and Trump does what he says, it is good for the world, because it will revive many parts of the American economy.
When people have more money to spend, they will do it... everyone will be better off for a while, and that is why the markets are going up.
Trump says he will cut taxes and that sounds very good. But how is he going to do all this? Protectionism has never been good for anybody. No one has ever won a trade war. Every one will suffer with protectionism, and if Indians cannot go to America anymore, it may be bad for Indian companies, but it will be good for India.
The smart Indians won’t be rushing to the US any more—they will stay in India and build companies. Or maybe, they will go to China or Germany—but in the end, it will be better for India than the US.
Are geopolitical being risks ignored by global investors?
Be it India, America or Europe—everyone is of the view that there is nothing to worry about... Interest rates going up is a big risk. Historically in the US, when the Fed raised interest rates four times, it was the end—the markets and the economy would then go down. Now, there are people who argue that it historically was correct, but it is different now as interest rates are zero; so maybe we can have a couple of interest rate hikes before the end.
What are the key risks to this rally in emerging markets, particularly India?
Remember, whenever markets are going up, people ignore the bad things. You can go and say that the emperor has no cloths and people don’t care. They are so happy with all the money they are making.
There is no question that the next time the world is going to have economic problems, it is going to be the worst that we’ve ever had since the Second World War, and a lot of people are going to be very angry.
Already a lot of people are very angry—there are a lot of people who cannot get jobs, and they have been waiting angrily for what they’ve been promised.
It usually takes a year or two after the markets collapse for that anger to build up—if say the markets collapse in September this year, by the September of 2019, you are going to be having a lot of very, very angry people.
Which sectors in India are you overweight and underweight, and why?
It depends on the prices—as I am not invested in India currently, I don’t know. But there are parts of the Indian economy that I am optimistic about for the future. Indian agriculture, Indian tourism, and these have a good future when the time comes down the round.