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India’s fundamentals improving, inflows to continue: Goetti

In an interview to CNBC-TV18, Hans Goetti, head of Investment – Asia, Banque Internationale shares his views on the markets including India and his expectations going ahead.

Below is verbatim transcript of the interview:

Q: Moody’s has upgraded the outlook of India to positive versus stable. Does that change things from foreign institutional investor (FII) perspective in terms of incremental money coming into debt market, the corporate bond market or even equities?

A: It’s a reflection of the fundamentals improving dramatically in India and it will lead to further inflows by FIIs and we have actually seen quite a lot of inflows over the past few months into bonds especially fixed income. This is because interest rates in India are bound to come down as inflation comes down and on a risk reward basis bonds are probably even more attractive than equities at this point, so foreign inflows will continue.

Q: For last couple of days the market on fire has been the Hang Seng market. What is going on there and would you expect that kind of trend to continue?

A: The H-shares in Hong Kong have been trading at a discount to A-shares of about 34 percent and over the weekend something came out and all of a sudden retail investors started to discover south bound through trend, up to few weeks ago only small portion of that quarter was used up. But now all of a sudden everybody realises that H-shares are trading at a discount to A-shares and we expect this gap to close the valuation gap.

It’s probably around 23 percent right now therefore, the trade to go into H-shares is still very attractive. On top of that, it still has retail investors in China going into Asia as well. Therefore, the whole environment for Chinese equities whether A-shares or H-shares remains very attractive.

Q: How attractive is India as compared to the other Asian markets at this point?

A: From valuation perspective India is a bit on the expensive side but the fundamentals and the outlook, inflation outlook, interest rate outlook, outlook for oil relatively the low oil prices all bode well for India.

Again, it’s a bit of a valuation question as how far we can progress from here because we had a pretty good run already but overall the India story is growth story, domestic growth story which does not depend so much on what the Fed is going to do next or what is going to happen in China. It’s a standalone growth story and that’s what makes it attractive.

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