Invest in China’s consumption theme

Falling commodity prices is entirely good. It is resulting in a deflating world with lower capex spends, says Gopal Agrawal of Mirae Asset.

How will the fall in commodity prices benefit India Inc?

The commodity price fall is definitely benefiting the consumer. It will lead to margin expansion across sectors. The fall will also help us resolve some of the issues in the power sector, as gas and coal prices too will fall. But there is a point of disconnect. Oil is a big source of revenue for the Government. On an average, 27 per cent of tax revenues comes from the oil sector. So the Government must focus on increasing GDP growth for higher tax collection.

If oil continues to fall, there will be pressure on oil producing nations in West Asia and Norway. These countries invest a significant amount into equities and fixed income markets and India is a beneficiary of this inflow. It is precisely for this reason that we must get our growth back on the rails.

Should the slower pace of growth in China be a cause for worry?

China is the ‘factory of the world’. So if the world growth is affected, China too will experience growth pangs. But the silver lining in China is domestic consumption. The best theme to invest in China is on their local consumption. Inflation has crashed to 1.5 per cent and as the central bank reduces rates, consumption will benefit. I would suggest investing there.

Is the Russian ruble crisis a cause for concern? Do you see a repeat of the 1998 currency crisis?

We have to be ready for some currency volatility. It is surely not like the 1998 crisis. This time the good part is that emerging Asia is quite strong. We have to be ready for some flight of capital.

Are markets likely to be re-rated?

There is a great chance of India getting re-rated. Everything is in place — contained CAD, fiscal deficit and low crude prices. The only thing now needed is reviving growth and enhancing our GDP.

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