Revival to gather steam on rebound in corporate earnings

Apr 20 2015 : The Economic Times (Mumbai)

ET Exclusive - India will Soon Break into a Run, Feels Walker

Nishanth Vasudevan

Mumbai:





Revival to gather steam on rebound in corporate earnings

Jim Walker, among the first strategists to get bullish on India 18 months ago, predicted that economic revival would gather steam on the back of a turnaround in corporate earnings, followed by a rise in investment.And, for anyone with a 3-10 year investment horizon, “India should be your No. 1 priority,“ said the Asianomics founder and former CLSA chief economist in an interview. in an interview.
At the same time, he was caustic about RBI not cutting rates. “Recoveries are profit-led, not investment-led,“ he said. “Investment activity is the natural consequence of companies and entrepreneurs spotting and realising profitable opportunities. Governments and central banks can facilitate improved profit outlooks but they cannot create them artificially .“ Although Walker put himself on the side of the sceptics regarding the latest GDP series, which reflects faster growth than previously estimated, companies are set to do better than before.
“We are confident that Indian businesses are on the cusp of another round of growth based on improved profitability and profitable opportunities,“ he said. “Investment spending will then follow naturally, although first off from retained earnings. Once the recovery gathers steam and growth accelerates into the 6-8% range, then today's valuations will seem cheap.“
Walker said it wasn't clear why rates weren't being cut. “We are also looking for more aggres sive monetary policy action and expect another 100 basis points of rate cuts this year,“ he said. “Quite honestly , we have no clue what RBI is waiting for or what it is seeing that would prevent these moves.They are not essential to the India story but RBI is definitely helping keep business costs much higher that needs be the case. That is just a stupid policy mistake.“
A basis point is 0.01 percentage point.
He said investment themes depend on the time frame.
“If you are a trader looking for quick returns and thinking three months ahead, maybe you would be better off playing the central bank guessing game -where is the next most active QE (quantitative easing) policy action likely to be? If you are an investor looking out 3-10 years or longer, India should be your number one priority ,“ he said. “We still think industrial stocks and deep cyclicals are the best bets at this juncture. We are long on the India small cap index and our global high conviction call is centred on the BSE 500 rather than the Sensex or the Nifty.“
Walker said the rupee is likely to be at 6163 against the dollar for the rest of 2015.
“When we look at the trade-weighted nominal and real exchange rates, we see the rupee as being significantly undervalued. However, we would expect RBI to protect that undervaluation somewhat over the next few years,“ he said.“On current indications, I wouldn't be surprised if we were looking (at the) rupee at 62-63 by end 2017 as well.“