Mutual Funds

‘A Chinese slowdown is not good for India’

Nalinakanthi V | Updated on April 13, 2014

Gopal Agrawal

The Indian economy grew fastest in 2008 when China grew by 11.4 per cent, says the CIO of Mirae Asset Management



The tiny Mirae Asset Management has proved to be a rather good manager of emerging equity and global funds. Its CIO, Gopal Agrawal, has been spot on, on his call on gold and global markets. Here he shares his views on global markets and commodities in an exclusive chat with Business Line. Excerpts:

With the Sensex and Nifty at new highs, is there more steam left in the market?

The current rally is a function of three things — stability in the economy, global economic recovery and hopes of a better political environment. Among them, domestic economic stability has a bigger role. A reduction in the CAD and inflation, better fiscal discipline, steady crude prices and benign industrial commodity prices should augur well for the economy. If you look at conservative earnings of ₹1,460 for the Sensex, it trades at 15.5 times FY15 earnings, which is reasonable, compared to the peak multiple of 22 times. With a revival in GDP growth, markets may go a long way from here.

Will the outperformance in the US market continue this year?

The US market witnessed a significant rally last year. I am structurally positive, given that it is their competitive advantage and benign monetary policy which have helped performance. But the kind of returns that we saw last year may not recur. So expectations may remain muted this year.

Is the slowdown in China likely to be protracted? What will be the impact on India?

China is rebalancing its economy to focus on domestic consumption-led industries instead of infrastructure and export-led growth. In my view, their GDP may not slip below 7 per cent; being a communist country, it needs to create jobs to maintain quality of life for its people.

I think China slowing is not positive for India. Higher prices of most industrial commodities, barring oil, actually benefit us. Because this will help our basic industries, increase tax revenues and create employment. For instance, the Indian economy grew fastest in FY08; that was when China grew 11.4 per cent and oil was at 78-80$/barrel. So it’s the oil and gas price which is a concern and not China. China’s growth is a boon to India.

Where do you see gold and silver prices?

In my view, $1,200 an ounce is the normalised cost of production and the cost for new miners. So, with hardening of rates in the US, though gold price may remain weak, it may not fall materially below $1,200. If it falls, then the physical premium will go up and you cannot have new supplies at $1,200. I expect it to settle around $1,200. There is a chance that the new Government may scrap the 10 per cent import duty, which may further weaken prices in India. Likewise, silver may not go below $18, which is the average cost of production.

What is your view on oil?

Today there is a lot of premium in oil trade. The premium between WTI crude and Brent is at $7.5, unlike the historical discount of $2-3 a barrel. This is because Libyan production has reduced and the oil market is adequately supplied, yet the risk premium and unrest are holding up oil prices. But my sense is that oil will be a more stable commodity and over a two-to-three year timeframe it can fall to $90.

The India Opportunities Fund has been one of the most consistent performers in the last five years. What made this possible?

Our strategy to look at companies that enjoy high return on equity and healthy cash flows has worked well. Our ability to pick the right stocks and right sectors helped us consistently outperform across market cycles. We don’t want to chase growth by buying highly valued stocks. We avoid extreme multiples.

What are the most promising sectors over three to five years?

Oil and gas is one theme which looks promising, because of steady crude prices and strong rupee. Others include cement, capital goods, metals and mining, and banks. If the country’s macro-economic conditions continue to remain stable and if the global economic recovery continues, these themes will play out well.

Published on April 13, 2014

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