India A Better Alternative To China: Deutsche

Global investors are seeing India as the next big opportunity for investment, says Marco Ravagli, director and senior portfolio manager for global emerging markets at Deutsche Asset and Wealth Management. Ravagli, whose fund manages assets worth $1.28 trillion, says India can be a good alternative to China because of the huge opportunities it offers. In an interview with ET’s Biswajit Baruah, Ravagli talks about Indian markets, the apprehensions of foreign investors and the sectors he is overweight on.

Markets are rallying on hopes of a BJP-led stable government coming to power after the elections. How do you see markets behaving, post elections?

We hope India will have a strong and stable government, a government that will help speed up reforms. You already have a very strong central bank, one of the reasons why India has been able to outperform other countries in emerging markets. Post elections, a strong government will help push the reforms agenda further. India is on its marks and is waiting for a start. We believe that India can be a good alternative to China in the emerging market basket from the global investors’ perspective as there is plenty of opportunities.

Your fund house has ‘neutral’ rating on India. Are you apprehensive of the election outcome?

We are in an electoral campaign. Experience tells me that everyone in an electoral campaign will make promises. The reason why we are neutral on India is due to the upcoming general elections. Global investors favour a strong government and, frankly speaking, it doesn’t matter which party wins, they just want a stable government that pushes ahead the reforms agenda.

In comparison with previous years, emerging markets have seen tepid flows so far this year. Is there a higher risk in EMs compared with developed markets at this point?

If you are a global investor, you see better opportunities in developed markets. The US economy is still improving. In Europe, the GDP growth prospects are getting better. In emerging markets, general elections are scheduled during the year in many countries -- India, Brazil, Indonesia, Turkey and South Africa. As a result, developed countries look less risky than emerging markets in the medium term. Right now, the biggest conundrum is China and India. In China, the new politburo is undertaking a major reform. While this is positive, we don’t know how long it will take for the reforms to have a real impact since it’s a huge country. In India, in the short term, we are waiting for the elections and investors are not ready to take a bet on the elections.

The Fed is expected to announce further tapering of its quantitative easing programme. How will this impact emerging markets, including India?

After the recent Fed chairman’s speech, it’s pretty clear that another round of tapering is coming, but not as fast as some predicted. The start of tapering means the US economy will go back to a normal growth path. But that does not imply, contrary to people’s expectations, that interest rates will rise in the near future. The short-term impact is it would not be that positive for EMs. At Deutsche Asset & Wealth Management, we are still underweight on emerging markets and tapering is one of the reasons. We think that as soon as the tapering talks hit the markets again, we will get a better buying opportunity for emerging markets. The Fed is buying $10 billion less than it used to, but they are still buying. It all depends on the macro numbers in the US. The employment numbers in the US are the key. Economists wonder if the dip in employment numbers is indeed for the long term. We believe that if inflation is also under control, then rates will continue to stay low.

We have seen many sovereign wealth funds participating in Indian markets. How do you rate India as an investment destination among emerging markets?

Global investors recognise India’s potential and view the country as the next big opportunity for investment. They hope that the new, strong government will push reforms in a big way. This will be a boon not only for the markets, but also for steady growth. As an emerging market investor, we see the country offering great growth opportunities not just for the next 2-3 years, but over a 5-10 year horizon. We are keen to invest in a country that can deliver sustainable doubledigit growth and cash flow for the next 3-5 years.