So far, the Modi government has done nothing but talk: Jim Rogers
The trading guru explains why he’s getting disillusioned about India
Singapore: Commodities trading guru and hedge fund manager Jim Rogers says he is getting disillusioned by India because the Narendra Modi government has been all about talk and no action. Rogers, chairman of Rogers Holdings Ltd, said he bought into India last year after the Bharatiya Janata Party (BJP)’s victory under Modi, and so far, the government has done little to impress foreign investors.
Rogers has been for some time now a critic of the policies of the Indian government. In an earlier interview with Mint in 2013, Rogers had lashed out at the BJP as well the Congress, saying that both these political parties “have not been and will not be good for India”, until they completely open up the Indian economy.
The Singapore-based Rogers has now said that the Indian stock market’s performance cannot be a gauge of the government’s performance, pointing out that many markets had been doing well, buoyed by a massive amount of liquidity sloshing around the world. Edited excerpts:
You had been heavily critical of India’s United Progressive Alliance (UPA) regime. You had earlier said you were shorting India and blamed the then Congress-led government’s lack of reforms and policy paralysis for that. It has been close to a year since the Modi-led government came to power. Has the situation on the ground changed?
I had bought shares in India—it was one of the few times I’ve done that in my life, and it was because of the new government. So far, the new government has done nothing but talk, and it is a shame because Modi had experience; he said he knew what needs to be done. He campaigned for many months saying he knows how to fix India, but he has done very little. Cleaning toilets is wonderful, but as far as building the economy or changing India (goes), he has not done very much. I still own Indian shares, and I wonder if I should continue holding, because, after a year of no action, you begin to wonder if anything is going to happen. One might say he is getting ready to act, but Modi had run a provincial government for a long time and he knows what to do. So what is all this talk about? I am getting disillusioned about India, but I’ve not acted yet.
But running a state government is different from being the Prime Minister of India. The Modi-led government has undertaken reforms and the economy is witnessing a turnaround. He also needs consensus from the states on some critical reforms. Modi does not have a majority in the Upper House to pass key reforms.
That is one reason why I have always been negative on India, because it is an impossible place. But Modi has a very large majority, he has experience, he has the contacts, and if anybody could do something, it has to be him. If he can’t do it, then I don’t want to remain invested in India. If he can’t save India, no one else can. So I would want to sell.
Global investors don’t share your outlook on India. Rather, they have been very positive on India over the last 12 months. India was among the best performing markets last year, and has done very well this year, too. India’s image has seen a turnaround over the last 10 months.
Yes, Modi tells a good story. He is doing all the right things, but so far there has been no real action. I hope I am early—I am beginning to wonder if he is for real. I hope I am the first to see if he is for real. If he is not for real, I hope to get out early—I don’t want to get out of India after everyone else has done it. Modi has done a few small things, but these small reforms have had very little impact on India’s economy. Toilets are good for people, but Modi has not done much to improve the overall economic standard of living, or done much for investors.
Yes, the Indian markets have performed well, but markets everywhere have been performing well. There is a massive amount of liquidity floating around the world. This is the first time in recorded history all major central banks—Japan, America, Europe, Britain—are all printing huge amounts of money. It is not just Indian markets that are going up—China has gone through the roof, Japan has more than doubled in the last few years, America is at an all-time high. Markets are going through the roof because there is all this liquidity, and some of that is coming to India because Modi tells a good story. It is a very good story, but I would rather put my money at some place where there is a good story and action.
So, which are these places that have a good story and action? Where would you put your money?
China, Japan and Russia. If I sold India this week, I would probably put that money in Russia. But I am not selling India this week. Russia has been one of the strongest and most attractive stock markets in the world this year. Russia has vast natural resources, it is not a debtor nation and, unlike India, it doesn’t have exchange controls. If anybody should have changed that, it should have been Modi; but he is not doing anything about exchange controls. There are many things going right with Russia. The price of oil has collapsed, which is hurting Russia badly, but that has already happened—it is old news and it will not have much of an impact in the future. Russia is perhaps the most hated stock market in the world even though it is among the best performing. That is because most people’s reaction is, why would you invest in Russia? There are good things happening in Russia that are attracting me as an investor.
Foreign investors could also be bullish on India because there are not many other places globally to put capital in.
You are wrong about that because China and Russia are much more attractive than India to my mind. Chinese and Russian markets are very big. Indonesia might be more attractive than India currently. Japan is attractive. I am not sure how long global investors will be patient with India, but I am beginning to lose patience. If investors are still positive, that is good news for me, because I want to be out before them. Modi is a popular guy and he has not done anything wrong so far—inaction is the only wrong he has done so far. He has not done anything foolish that will make investors say, “Oh my God—let us get out of here.” His is a sin of omission.
Coming back, you are still negative on India. From the perspective of international investors, what should India do?
First, get rid of exchange controls and make it easier for foreigners to invest in India. Currently, it is a nightmare, and this is happening in 2015, and not 1915. Why do they still have exchange controls is beyond me, and they claim to be one of the new age emerging countries. If Modi says he understands what India needs, why does he not address it? I understand what India needs, but I am not the prime minister, and he does not have to listen to me by any stretch of imagination. But the first thing I would have done is to open up the markets. I can pick up the phone and invest in Australia if I want to put my money there, but I cannot do that for India, and that does not help the image of the country with investors. If I see this reform, then I know that India is changing and that it will be a new and modern economy, and that the days of Nehru are finally gone. So far I don’t believe that.
Rating agencies, which have been unsparing about their criticism of the UPA’s management of the economy, have changed their outlook on India. Recently, Moody’s Investor Services raised India’s credit outlook to “positive” from “stable”, and it said that recent policies will result in healthier public finances and push growth. This is an endorsement for Modi. Fitch Ratings recently praised the government for its reform agenda.
Rating agencies rarely get it right about anything. If you base your investment on what the rating agencies say, you will probably go bankrupt. The public pays attention to what they say, reporters have to pay attention, and politicians have to pay attention to what rating agencies say. But I’ve not seen the situation change on the ground. Indian debt is over 90% of GDP (gross domestic product) and it is difficult to grow rapidly when you have high debt—no matter what you do, you’ve got to pay previous debt. Basic situation is the same, and I have no idea why rating agencies have changed their opinion. They have probably been just listening to Modi, which is why they might have changed their ratings. I pay no attention to them. The saving grace for India is that the head of its central bank is the least bad of all the central bank heads in the world. He understands what is supposed to happen, and he understands what needs to be done. But he is just the head of the central bank, and he can’t do everything India needs. I wish he was running the American central bank or many other central banks, because he understands how the world economy works. I am not saying he is great—all central bankers are bad—but, he is certainly the least bad.
How do you see China—mid and long term?
I bought Chinese shares last week, even though it was going through the roof. China might be my largest position. China is going to be the next great country in the world and there is no doubt about that—the risk at this point in China is that it looks like there is a bubble developing and the market has doubled in less than a year. It is not a bubble yet, but it could be turning into one—a massive number of Chinese are opening brokerage accounts again, and markets are going straight up and people don’t know what they are buying. I am bullish on China—if it turns into a bubble, I have to sell. I don’t want to sell... China has got a great future. China is going to be the most important economy in the 21st century and not India. Even if Modi comes through, India’s bureaucracy is so entrenched, so powerful and so staggering. India does not have the education, infrastructure and work ethic that China does. India is a chaotic democracy—democracies can be extremely successful, but not chaotic democracies. In my view, India is not a terribly rational country. I would suspect more and more people in India will start to get impatient, and not just its youth who need jobs. If you open up the country completely, more foreign investors will come in, and that may create jobs for India’s youth. Yes, some money may leave—fine, let it go—you want the new dynamic money rather than the old money that wants to get out. I would put money into India if its currency was open and convertible, and I’m sure there will be many others like me.
Your take on the dollar rally...
I own the dollar and I’ve owned it for a while. I’ve owned it not because the dollar is a great or sound currency—the dollar is a terribly flawed currency. I own it because there is turmoil, and more turmoil is coming, and in times of turmoil, many people flee to safe havens. They think the US dollar is a safe haven—it is not. America is the largest debtor nation in history and its debt is going higher and higher. And because of this perception, I own the US dollar—the dollar may turn into a bubble like the Japanese yen has collapsed in the past. If the dollar corrects, I may buy more. If in a year or two, if the US dollar is even higher, and it turns to a bubble, then I have to sell. If the rupee is convertible, I might put my money in the rupee at that time, but it does not seem like the rupee will become convertible.
Where do you stand on gold currently? Will the Shanghai International Gold Exchange control the price of gold?
I own gold, but I’ve constantly said I am not buying gold. I’ve not bought gold for several years. But I am not selling. I expect another opportunity to buy gold sometime in the next year or two, at which point I hope that I am smart enough to buy more. Gold went up for 12 years in a row, which is extremely unusual for any asset—the correction is also somewhat unusual because it is lasting more than most corrections as the rise was unusual. If gold were 50%—if, and this is not a prediction, it will be under $1,000 dollar/ounce and I hope that at that time, I am smart enough to buy more. The Shanghai International Gold Exchange makes it easier for some people to buy gold—the Chinese have been buying gold a lot less over the last few years. Fifteen years ago, it was difficult to buy gold in China, but it is getting easier and easier now—the Shanghai International Gold Exchange will help, but it is not a significant factor.