Singapore: Commodities trading guru and hedge fund manager Jim Rogers, who had sold his holdings in Indian companies and exited the country in late 2015 on the grounds that the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi had failed to live up to investors’ expectations, said he was reconsidering entering India.
With Indian markets sustaining a record-breaking rally, Rogers admitted that he may have missed the bus on India, “On GST, I am amazed, shocked and stunned," he said in an interaction, referring to the goods and services tax that will create a unified market in India.
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“If Modi continues doing stuff like GST, then not just me—everybody has to pay a lot more attention to India. This does not mean that I won’t have another chance to enter—India is currently on my list of something to do," he added.
Edited excerpts from an interview:
In September 2015, when we last spoke, you said you had sold all your holdings in Indian companies and exited India because the NDA government had failed to live up to investors’ expectations. But since then, the Indian markets have rallied and are at record highs, and reforms are on track, including the passage of GST. Foreign direct investment (FDI) into India touched an eight-year high of $46.4 billion in 2016.
Wait—India passed the GST and that astonished me. I am surprised that Mr Modi’s government got that through. It is a historic move as this has been a very contentious issue among Indian politicians for several years.
You say FDI flows into India are at record highs, and it is certainly not me. I am surprised with the FDI inflows—while Modi has undertaken small reforms, and cleaned up some stuff, I am not aware of any big steps to boost FDI. Yes, I am impressed, and I see that the markets are at an all-time high; currency is going up—they are making new highs without me, and that does not make me happy.
This has made me realize that something is happening in India. When GST was passed, I reconsidered investing in India, and I thought, “wait a minute—this is going to work". I am positively impressed, but I’am not back to investing in India yet—the markets are at an all-time high, but I don’t want to jump on to a moving train. When you jump on to a moving train, you’ll get hurt.
I missed the bus in India. If Modi continues doing stuff like GST, then not just me—everybody has to pay a lot more attention to India. This does not mean that I won’t have another chance to enter—India is currently on my list of something to do.
When you look at emerging markets as an investor, where do you see India?
India still has a lot of debt, unlike Russia that has a convertible currency and does not have much debt. I am invested in Russia. One reason why Russia does not have a high level of debt is that no one was willing to lend them money—and that is not necessarily a good thing. Indian politicians have been saying for a while now that the country will address this situation of debt, but nothing has been done. Some studies say India’s debt-to-GDP ratio is at 90% now. It is difficult to grow at a rapid pace when you have such high levels of debt, because you are dragging along interest rate payments.
But India is still on my list, especially if Mr Modi can continue doing some of the stuff that he said he would do, and especially if the government makes the currency convertible and opens up the markets. I am more impressed by Mr Modi as a politician than as someone who is executing reforms—yes, GST was extraordinary. But your prime minister is a great politician; he is travelling around the world and making friends everywhere.
As a politician, Mr Modi is one of the most successful and exceptional of this generation—no question about that. No surprise that he has picked up all states in the recent elections. Seventy years since independence, he is cleaning up the gigantic mess with moves like GST, which no on else has been able to do so far.
Finance minister Arun Jaitley recently said India’s economy is expected to grow at 7.2% in 2017 and 7.7% in 2018. What is your view?
Most people don’t trust these numbers, including me. I used to say that what India does is to wait for China to announce its numbers, and then top them. I am skeptical of Chinese numbers and I am skeptical of Indian data. I am skeptical of American numbers, too. I’ve learnt over the years that if you are sitting and watching government numbers, and do your investments based on that, you are not going to make much money. Not too long ago, they caught the Germans faking numbers—the Germans of all people!
When you look at India, what are the risks? Could it be populist steps leading to 2019, the reforms process not continuing, or rising oil prices?
I am more worried about the world because that will impact India. Yes, India has elections coming, and normally when that happens, any politician will do anything to win elections. Mr Modi is in a position to do a lot of stuff. I am not too worried about what is happening internally in India as the Modi-led government has momentum and everything going for it. The world situation is more worrying. Mr Trump has now bombed Syria. Many American presidents love war, and Mr Trump had said he was a non-interventionist.
Now look at him! He is involved with Syria, and also saying he is going to get involved with North Korea. These can potentially not be good for the world. If the Middle East blows up in the next year or two, it won’t help the markets. It will help Russia and oil. It won’t help India or China. Mr Trump has promised to have trade wars with Mexico and China. He has not done it so far and so, maybe, is just another lying politician. But he said the same of Syria and then he intervened. He has said North Korea better watch out. He met with the Chinese and did not get anything. Power corrupts. Interest rates are going higher no matter what happens. The French and German elections are coming up—they could be disruptive. These worry me more than what Mr Modi is doing inside India.
See, first I was interested in India because of his (Modi’s) record and what he said he planned to do. Then I invested. But he did nothing much for two years, and I sold. Unfortunately, I sold too soon. Modi will not do anything foolish before next elections—but the global situation can have an impact on India, irrespective of what Modi does. On the (farm) loan waivers, while I would say it is terrible economics, it is also brilliant politics.
Not just India, the global markets have rallied since Trump took over. So where can one invest in times like these?
America is at an all-time high, and be it Japan or Germany—their markets are all doing well. There is a lot of money floating around. I had expected it all to slow down by now, but it has not. The Americans say they are going to be cutting back—but nobody has really done that in that past year or two. The only place I am looking to invest right now is Russian government bonds because the yields are very high—the rouble is down a lot. For whatever reason, Russia, which has been the most hated market in the world, is becoming less hated—more countries and politicians are reconsidering Russia. I’ve learnt in my life that if you buy things that are hated, they will make a lot of money even if takes a couple of years.
India is at an all-time high.
I own a lot of US dollars, and the reason I own it is because of the turmoil that I see coming, and people look for a safe haven in times like that and the dollar, rightly or wrongly, is considered a safe haven. But it is not—America is the largest debtor nation in the history of the world. What will happen is the US dollar will get overpriced and may even turn into a bubble, depending on where the turmoil is, and I hope that at that time, I am smart enough to sell the US dollar and put my monies elsewhere. Conceivably, it will be gold. Often, when the US dollar is very strong, gold goes down. I own gold, but I’ve not been buying gold in recent years. But if gold goes down sufficiently, I will sell my US dollars and buy gold. I expect the dollar to go substantially higher, and I hope I can sell then.
Crude is in the process of making a bottom—it is a complicated bottom—we are going to look back in a few years from now and say that in 2015, 2016 and 2017, crude made its bottoming pattern. I will not sell crude now, especially if Trump is going to throw some more bombs around.
The Fed has said they will raise rates again this year. What’s your view on that?
The Fed will continue to raise interest rates—we cannot continue like this—negative interest rates in most parts of the world are destroying a lot of people. Many pension plans, insurance companies and trusts are suffering badly now—you are going to have some pension plans in America go bankrupt, or not earn any money. They have the obligations to meet their promises as people continue to get older. When interest rates go higher, they are going to make bonds go lower—it is going to help the US dollar. Historically, in the US, if the Fed raised interest rates four times, it meant the stock market would go down and go down substantially for a while—it is clear that the Fed will raise interest rates four times, and it does not mean that it has to happen that way. One could counter and say, rates going up from zero to four times is not such a big deal and, therefore, it is different this time. Four of the most dangerous words in the financial markets are: “it’s different this time". It is very dangerous when you hear people say that.
We are already four months into this calendar year. What do we need to look out for when it comes to the rest of 2017?
We are also eight years into an economic recovery in the US, which is also very unusual. Most times in the US, every four years to 7-8 years, we’ve had economic setbacks since the beginning of the republic. Again, it does not always have to happen that way, but it nearly always has. Yes, we are four months into 2017, but I am more worried about the next couple of years. Mr Trump has promised some wonderful things.
He has promised lower taxes, which is great for any economy and America is the largest in the world. He has promised to rebuild infrastructure, and that is wonderful, and we need it. He has promised to bring US dollars home—we have $3 trillion sitting outside the US by American companies and he has promised tax incentives to bring that home. He has promised to cut regulations and controls in the US economy—all of that is fantastic. If he does all this, and does not go to war, and also does not engage in a trade war, we can continue to have a good time for the foreseeable future. But I am skeptical because interest rates will be going higher, and because it has been eight years since we’ve had no problems in the US. For the US to continue this run, it can happen, but it has to be on a lot more debt. If all of that leads to a bubble…
The other side will be very bad. Don’t worry—you will have a job and Mint will be in business because someone will have to be reporting all of this coming turmoil.