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- tells ET Now.Edited excerpts: It has been a great August for the bulls. But if I make a very myopic kind of market assessment, there are two markets which are outperforming: a) US within the developed markets, and b) India within emerging markets. The common thread here is that both these economies have a superior promise of growth and earnings. I would agree with that. There is obviously an election acceleration in public spending. India does have a good fundamental story without some of the concerns that we are seeing in other emerging markets. We do have trade disputes which is particularly important for the Korean and the Taiwanese market where you got a lot of exporters listed. In China, they continue to be concerned about the level of leverage and it is a slightly tighter money environment plus you got United States. Moving to Latin America, we got some very specific issues around Brazil and Mexico. The Argentine story really is not a significant one for EM headlines. There are some concerns around Turkey and then some concerns around success in South Africa. India is really sitting isolated with strong fundamentals. There are strong fundamentals for the equity market. It is suffering from broad concerns about emerging markets foreign exchange (EM FX) and we got a 70 handle now on the rupee versus the US dollar. In absolute terms, it is a good story for the rupee-based investor but a tough story for the dollar-based international investors. Do you not worry about the economic impact of rupee at 71, a level we have never seen before? It might have an impact on the macroeconomic picture, especially since crude is a big niggling worry for the economy. Yes, it is a very important point here. So you reduced the flexibility of the central bank but we also need to be very conscious that the bulk of the Indian consumers have relatively small amounts of discretionary money and as inflation rises on non-discretionary goods such as energy, that will have an impact and may start to become politically quite sensitive. So, it is very important to think through the impact of the weaker currency and its effect on inflation and how that impacts the attitude of the consumer and the voter. Many concerns have been laid on the growth numbers in India and whether the growth momentum can continue. The last reported numbers have a bit of a base effect which is playing out. But how much can the currency angle help in export contribution to overall growth? Is it going to be largely dependent on domestic demand? How would stories like M&M and HUL be key drivers of the domestic growth story? We should look at this from the perspective of the capital markets which are going to be focussed more on profits rather than on the GDP numbers. Remember that there are some concerns about how to interpret the GDP numbers with some of the changes in methodology. I go back to looking at this from the perspective of capital markets. India does have a fair number of export earners in its capital markets and clearly, they are going to be big beneficiaries of a currency that has weakened to this extent. We are seeing a leadership change playing out in the market among the largecaps. Up until a quarter back, only the Reliances and private banks of the world were going up. Now, we are beginning to see a meaningful comeback in some of the corporate banks. Could this leadership change be long lasting and newer hands contribute to market recovery? It is too early to make that call. Of late, they have been performing well but they were extremely poor performers. Prior to that, there were significant concerns that there are constantly going to get more bad news on provisions. The results were not as bad as the market expected and you are seeing a degree of a relief rally. It is too early to say this is a change in leadership. We have been here before we thought the worst of the provisioning was over for these institutions and then we went into another cycle. Let us be open minded to the idea but also continue to be somewhat cautious because many of these bad loan issues are not going to be resolved simply on account of the economy getting stronger. They could be compounded by a weaker currency if they are using some external debt. My view is it is a little bit of a relief in a sector that has been very oversold rather than a sustainable change in leadership. How are you mapping the rural demand theme right now? Do you believe it will be played out through consumers and consumption-oriented companies - FMCGs or is it going to be broad based? When we started the year, leadership was provided by FMCGs. It was all about the rural consumers, a part of the classic theme around the election cycle. At this point in time, we need to reflect what we were talking about earlier which is that the potential for inflation will rise with a weakening currency. A relatively strong oil price could start to put a bit more of a squeeze on the rural consumer looking into 2019. Now we are already in September, the capital market mindset is going to be switching from the current year to the future year. So, calendar year 2019, the fiscal year to March 2020 and I think the rural consumer theme which has been a strong one in the capital market is running a bit of a macro risk from my perspective as a strategist.Valuation concerns for consumer staples have been there for the longest time I can remember -- almost half a decade now. We would say that consumer staples are expensive yet they continue to grow. What should a long-term investor expect from consumer staple stocks now? Will they continue to grow in line with the earnings or have we reached a level where consumer companies will grow but stock prices may remain flat or enter into a time-wise or a price-wise correction?I would be cautious on them over the next 12 months. They have performed very well. If the consumer discretionary income is challenged by higher inflation, the risk is that short-term growth rates of FMCGs looking into next year which is what the stock markets and the stocks price could be reduced. As the growth rates reduce, it is going to be hard to sustain these higher valuations. The market will look towards the clear beneficiaries of the weak rupee. These companies with a large proportion of earnings dependent on commodities which have an international price, are likely to continue to outperform rather than FMCGs. It all goes back to the conversation we were having earlier about inflation and how inflation impact discretionary income and growth for FMCGs.I would like to draw your attention to what is happening in the western world. Apple and Amazon have added about $100 billion plus of market cap in August itself and that is like saying that in America, a company of the size of TCS and Reliance get created in a month. That kind of a market cap or price addition is unlikely to sustain. If some of the FAANG stocks reverse, do you think that could have a contagion effect on rest of the world?Yes, it is a very good question and I would make a distinction between Amazon and Apple. The valuations of Apple are not stretched, particularly if you look at its multiples. It does have interesting revenue strengths particularly on the services side and people were impressed that the demand for the expensive i-phone x beat expectations and thus the contribution from i-phones was good in terms of profits even if unit numbers are not growing at the same level. Amazon, clearly is the dominant e-commerce and broader retail platform which has significantly higher valuations. There is probably more reason to invest in the Amazonâs, the Facebooks and the Netflixes of this world. Year to date, we have seen some challenges to these stories, particularly for companies like Facebook which did have a big correction after their most recent earnings conference call but it does not seem to have disrupted the US story. I can go back to looking at the US growth story, the tech story and it is being supported by good earnings growth, revenue growth and at the moment I do not see anything that is a fundamental challenge to that. If you did see a correction in the United States markets, that would not help other markets. It could cause broader selling pressure rather than causing a rotation into other markets, near term.How are you mapping the election risk for the markets? In the previous election cycle, you had a fair amount of pain from September to December and then the markets turned quite strongly into election results. So far, we are going into that event with the markets at peak. There could be a bit of a currency angle which is a bit wishy-washy but other than that the sentiment per se is very strong. How do you see the market anticipate the election results and pre-empt that move?The marketâs view on politics appears to be that you will get some favourable policies for economic growth, some favourable policies for the rural consumers and hence the performance of FMCG stocks. I do not think the market is expecting any significant change in the government or in macroeconomic policy. There is a soft effect on the market as opposed to the market pricing in a significant positive or negative change in policy.Would we continue to see this rupee impact play out on IT and pharmaceuticals?I think it will. The trend in place is a strong dollar and weak EM FX. I would particularly focus on the Renminbi which on a straight weighted basket has continued to weaken and that has a broader influence particularly on the Asian EM FX baskets. The dollar is strong because the US economic data remains robust, the Federal Reserve under Powell has a plan to continue to move rates higher. It is much more ambiguous than what the plan is for the Bank of Japan or for the European Central Bank. Within the European region, we are increasingly likely to see the disruption around a hard Brexit which will have some influence on Sterling. For now, we are going to continue to see a strong dollar, weak EM FX. The weakness of the rupee is more modest than you are seeing in other EM FX, but it will continue and therefore there will be sectors that will benefit fro, that trend.
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- Kerala needs Rs 30,000 crore to rebuild: MinisterOn Monday, Finance Minister Thomas Isaac launched a special lottery, with each ticket costing Rs 250. The draw would be held on October 3. It is expected to raise around Rs 100 crore.
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- Copyright:(C)Mon 03 Sep 2018, 13:01:212018Mon 03 Sep 2018, 13:01:21 Bennett Coleman & Co. Ltd, http://info.indiatimes.com/terms/tou.html
- MUMBAI: WPP, the worldâs largest media and advertising network, has named Mark Read as its chief executive officer and his appointment on the Board of WPP as an executive director with immediate effect. Read replaces WPP founder Martin Sorrell, who quit in April.The 51-year-old executive has held multiple leadership positions across the company, including nine years as an executive director of WPP and for 12 years as head of strategy and then CEO of WPP Digital.âThe Board carried out a rigorous selection process, assessing internal and external candidates. That process, alongside Markâs wise and effective stewardship of the business in the last few months, left us with no doubt that he is the right leader for this company,â said Roberto Quarta, chairman of WPP.Quarta mentioned that the decision to appoint Read was unanimous.Read will get an annual salary of £975,000. In addition, he will be entitled for an annual bonus of up to 250% of salary with mandatory deferral of at least 40% of bonus into shares deferred for a two-year period. His remuneration will also include LTIP award of 350% of salary basis on performance measured over a five-year period. Also, a cash allowance of 20% of salary and a benefits allowance of £35,000 per annum to cover health, risk and other benefits are part of his package.âRecognised for his leadership throughout the industry, Mark has an intimate understanding of the business, he enjoys very strong internal support, and he has earned the respect and endorsement of our clients with his constant focus on their needs,â Quarta said.Read has played a key role in many of WPPâs successful investments and initiatives, and has experience at board and operational level. Most recently, he led the transformation of Wunderman into one of the worldâs top digital agencies.âWPP is a great company with exceptional people and strong relationships with clients who place a high value on our work,â said Read. âFew organisations have our global reach â" 130,000 people delivering results for clients in 112 different countries. Fewer still have our powerful combination of creativity and expertise in technology and data.âHe added that the industry is going through a period of structural change, not structural decline. âIf we embrace that change we can look ahead to an exciting and successful future. Our mission now is to release the full potential that exists within the company for the benefit of our clients, to accelerate our transformation and simplify our offering, and to position WPP for stronger growth.âAndrew Scott will continue in his role as COO of WPP on a permanent basis as a key member of the senior management team.
- It is a good story for the rupee-based investor but a tough story for the dollar-based international investors, Adrian Mowat, Emerging Marketa Equity Strategist,
- Article at EconomicTimes.com with article id : 65654996
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