Deutsche Bank co-CEO for Asia-Pacific and a member of the Global Group Executive Committee, Gunit Chadha says the new government needs to focus on several issues to increase confidence and push for higher growth in the first 12 months. Excerpts from an interview with TOI.
How are international investors reacting to the BJP victory?
Global portfolio equity investors (FIIs) have always been overweight on India, relative to the fundamentals. Even in the most challenging period of last few years, they reposed faith in the India story as evidenced by the fact that one saw very little exodus of FII money from the equity markets. Indian equity markets have continued to trade at a 25-30% premium to MSCI and nearly twice China P/E (price-earnings ratio) multiple. FIIs will add to their overweight positions on India and inflows in 2014 may top the previous high of $20 billion. I met some global investors and multinational CEOs in Singapore, London & New York and the mood was one of anticipation, followed by expectations. Optimism will follow. India will be increasingly strategic in more and more global boardrooms.
The first year will be very critical for the new government as expectations are very high. These expectations will be gauged around three-four key pillars. One is to get the confidence of Indian entrepreneurs back. That is very critical as Indian entrepreneurs need to get back to investing in capex on manufacturing and infrastructure.
MNCs cannot have confidence on India unless Indian entrepreneurs themselves have confidence in their own country. Corporate India will expect the government to fast-track de-bottlenecking and clearances of brownfield projects. Confidence will return, as they obtain these clearances over the next 12 months and policy reforms make it easier for the future. This will kick-start a new investment cycle, which India badly needs, to eliminate the supply-side constraints. The next priority for the government is to rein in inflation. The RBI has already taken the right monetary steps to arrest the currency slide in late 2013 and the high inflation continuing to-date. The government must share the anti-inflation burden, by continuing to focus on reducing fiscal deficit through tax reforms, eliminating wasteful expenditure and lowering food and fuel subsidies. Lower inflation will be a key pillar for reviving confidence.
The third pillar is growth. Growth produces jobs, which are critical in every economy. As confidence comes back, infrastructure investments get de-bottlenecked, inflation comes down and as a result RBI reduces interest rates.
Is the BJP’s stand on multi-brand retail a major negative amongst foreign investors?
FDI is critical and is the best anti-dote to current account deficit. India gets one-fourth or one-fifth of China’s FDI, and the government must do all it can to welcome global MNCs. However. I don’t think that multi-brand retail, as a single sector issue, is a significant. One or two sectors staying within the domestic boundaries of India is fine; it’s no different in several other countries.
Coming back to equity markets, do you expect investors will invest further into the Indian stock markets?
Absolutely, there’s no doubt in my mind. If reforms get implemented, you will see even more domestic retail and overseas institutional money coming into India. Deutsche Bank’s equity research shows the sensex trading at 28,000 by December 2014.
So, do you expect inflows to put an upward pressure on rupee and consequently inflationary pressures to rise with the rupee going up?
One would logically expect there would be upward pressure on the rupee but I also believe that it is an opportunity for the regulator to mop up its forex reserves. We could very well have a situation where the RBI steps in to mop up the currency, each time rupee gets stronger ahead of its fair-value.