CHRISTOPHER D. SPELMAN, CEO, JP Morgan Asset Management
With the Sensex at a 32-month high of 19,594, the big question on Dalal Street is: Is the market overvalued? CHRISTOPHER D. SPELMAN, CEO, JP Morgan Asset Management, says India is a compelling fundamentally driven story and there may be some short-term corrections, but if an investor takes a long-term view, now is a good time to invest. In conversation with GEORGE MATHEW, Spelman, who has worked in several global markets including Hong Kong and South Korea, says, "the weighting for India will increase significantly and this will further drive FII flows into the country." Excerpts:
What's your view on the valuation of the Indian market? Is it overvalued? Do the economic fundamentals justify the bull run on the markets?
The markets have witnessed immense volatility in the recent past. Considering the situation of the Indian market in 2008, when the Sensex slid below 8000, some may feel that the market is overvalued today; implying that now may not be the best time to enter the Indian market as levels may seem higher than long term average. However, we believe that the Indian economy and, in turn, the stock market will continue to perform well in the coming years. Whilst there may be some short-term corrections, if an investor takes a long term view, now is a good time to invest. Looking at the long-term growth potential, the Indian market is fairly valued.
India is a compelling fundamentally driven story. GDP growth is strong, inflation is coming under control, the demographics are extremely strong relative to all other countries and the required investment in infrastructure will all drive the markets. Earnings are recovering and the upgrade cycle has commenced.
Where do you place India among emerging markets? Tell us the advantages and disadvantages of investing in India...
The global economy is looking toward Asia to drive growth in the future. India and China are in the global economic spotlight. Undoubtedly, India is a great secular multi-year growth story. Since this has become a well-known reality, India is one of the more expensive emerging markets destinations. We also believe in the growth potential of Emerging Europe, Middle East and Africa. Earnings growth in these areas could be the primary driver of returns in 2010 and beyond.
We believe India is a fast growing, consumption led market with strong FII flows and a solid banking sector. India also witnessed 8 per cent GDP growth despite global economic uncertainty and investments in infrastructure are doubling every 5 years. India has also seen attractive return on equity during the last few years. Investing in India, however, is subject to domestic factors such as the possibility of political instability, the dependence of the agrarian economy on climate, and sluggish execution of infrastructure projects. Since myriad factors influence investment trends, fundamental bottom up stock picking is critical rather than just focusing on a sector.
Foreign portfolio investment in India has picked up of late. Why's the global money coming to Indian markets? Will foreign inflows rise further in the coming days?
2010 witnessed unprecedented capital inflows in India. FIIs have invested around $14.5 billion (YTD), despite a stiff global economic environment.Over the long term, we expect global investors to increase their exposure to India. India is under represented in the global and regional indices that many long only equity funds use to benchmark their performance and many ETFs and passive funds follow. The weighting for India will increase significantly and this will further drive FII flows into the country.
Though the market is at a 32-month high, Indian capital market has been unable to attract retail investors in a big way. What's keeping them away from the markets?
The primary deterrent to Indian capital markets attracting retail investors could be market volatility. The Indian retail investor is risk averse, and fluctuations in the stock market may induce fear of investing. Also, the emotional remnants of the 2007-08 experience have made investors wary of placing their money in the capital market. Lack of awareness and the scarcity of unbiased advice leave a retail investor lost in a sea of investment options. Until the fear of losing capital is overcome by the willingness to take risk to participate in economic growth, the retail investor could remain at bay. It is our firm belief that the Indian stock market will perform exceedingly well in the next 10-15 years. This presents a great opportunity for the Indian retail investor to participate in this growth story by investing regularly in the market. Investors should therefore look long-term and invest regularly with discipline instead of being concerned about market levels and P/E ratios.
Where's the global economy heading? Do you see further recovery in the coming months? There was a talk last month that global market was moving towards another slump. But it has been rising.
US recovery is expected to be better and stronger by 2013. Europe has registered the best growth in recent times. Emerging markets led by China, India, Brazil, South Africa and Russia promise to lead global recovery faster. However, there has been speculation on a double-dip recession- meaning a failure of recovery to take hold or a return to recession. Statistically, these are rare. Concerns about the US economy moving towards deflation and a 'double dip' recession have risen after leading indicators peaked and data came in weaker than expected. However, there has only ever been one 'double-dip' US recession in the postwar period (1981). With the present US recovery still in its early stages, the normal cyclical triggers for another recession so soon into the upturn are missing.
JP Morgan seems to be keeping a low profile here. Where do you see your company in the fund management business here 3-4 years down the line?
While we are conscious of the fact that AUM growth is important but we are very clear that we want to grow our business profitably. Profitable growth can be achieved by having an optimum product mix, excellent service levels and by being sensible in the way we conduct business. We are reasonably happy with the growth that we have achieved in the first three years of operations but there are definitely things we could have done better.
Source: http://www.indianexpress.com/news/fiis-driving-indian-market-to-alltime-highs-while-opening-doors-for-future/683992/0
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