India’s benchmark indices have corrected by 6 per cent in November (till date) owing to fears of the negative impact of a double-whammy: Donald Trump’s win in the US presidential elections and the demonetisation of high-denomination currency notes by the Modi government. Amid all the mayhem, however, the views of Dr Mark Mobius, Executive Chairman, Templeton Emerging Markets Group, Franklin Templeton Investments, on the prospects of emerging markets, including India, will come as music to investors’ ears.

According to the 78-year-old market veteran, the demonetisation will at worst result in a 50 basis point decline (that is, 0.5 percentage points) in GDP growth in FY17. Also, he says, Trump’s win and a likely rate hike by the US Federal Reserve will eventually be positive for emerging markets. Excerpts:

How will demonetisation impact India’s GDP growth in FY17?

There are concerns about the inconvenience caused to low- and middle-income people, interruption of business, and the lack of evidence of a decline in corruption. There is a chance of a small impact on GDP growth of perhaps a half-a-percentage point. The positive side is that banks have received huge cash deposits.

How do you see the Indian equity market post-demonetisation and the US election outcome?

Our overall view on the Indian market remains positive. India continues to grow at a good pace and businesses should do well with an expected growth boost to the US economy.

Are the fears for emerging markets, including India, arising from Trump’s win, valid?

The impact of Trump’s win will be positive for emerging market generally and India particularly. Multilateral agreements will be replaced with bilateral agreements, which will enable each country to customise the agreement structures to better fit their economies. Also, higher growth in the US will be good for emerging markets generally.

Do you see an abatement in the sell-off by foreign institutional investors in the emerging markets?

Yes, the initial reaction was based on the expectations of a stronger dollar, which has happened, but that will taper off. Investors will realise that they were too underweight in emerging market, particularly given the higher growth in these markets.

Do you think Fed will hike rates in December?

Yes. Trump’s supporters are generally angry at the low interest rates they are getting on their deposits. Trump will want to change that. So he will put pressure on the Fed to raise rates.

Will a Fed rate hike have any impact on emerging markets?

The impact of higher rates in the US will be muted for the emerging equity markets since higher savings rates in the US will mean that investors have more to invest in equities locally and globally. This will help emerging markets.

What is your view on India’s earnings growth? When do you expect to see a pick-up?

Earnings growth in India is generally down, along with other markets around the world. I expect it to pick up next year.

What are the themes one should look at in the new year?

The impact of the internet and robotics on manufacturing services and consumption operations. This is the most important theme.

Do you think the India consumption story still holds appeal?

Yes, the consumption story and stocks exposed to it look very appealing, with a huge and growing consumer population combined with rising per capita incomes.

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