02/01/2015
Bloomberg TV India
Interview wi th Group Chief Investment
Officer, Nikhil Srinivasan
Reporter: The markets may have missed the Santa cheer this December, but 2014 has
definitely been the year of the bulls. The Sensex has gained 28% this year alone and is the
second best performing index in the whole Asia, but will the bulls reclaim the top spot as we
enter 2015? To discuss that I am joined by Nikhil Srinivasan, the Chief Investments Officer at
Generali Group for this live and exclusive conversation.
www.generali.com
Nikhil, I will come to the markets and talk about your outlook for 2015, but I want to start with
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oil prices, that's the big headline. We've seen US oil hovering around 55 dollars, what's your
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outlook for 2015 and concerns with the short term given what've seen in terms of the fire
playing out in Libya, which is Asia's largest crude exporting market?
Nikhil Srinivasan: Yeah, the Libya fire might have some supply disruptions, but the
overall situation is such that you’ve got too much supply in the world and you've got a
slowing demand from emerging markets like China, so oil is going to remain offered. I
don't see oil picking up any time soon: I think you have some volatility in oil, but oil
prices remain low and I think they may even drop lower.
R: Alright, what about the cues you're watching out for in terms of the currency pack, and let's
start with the rupee: what's the range you're working with for 2015 and in terms of fund flows
panning on both for equity markets and especially the emerging markets basket in 2015?
We've seen strong depth flows in India, do you expect that will stay going forward?
NS: The currency situation is such that the dollar is a bid currency, so it's not about an
emerging market crisis or anything, it's simply that the dollar has a lot of demand, and
that should continue. You are going to see a strong dollar through 2015, and this has
an effect on emerging markets currencies. If you look at the rupee in the last 6-8
months, you’ve lost 6-7% of the value, and that's a concern. However if you look at
fund flows you've got about 40 billion this year in FII, most of them were half of that
from equities half of that from debt, it's going to slow down next year, no doubt about
that. Will people still be attracted to debt markets in India? Yes they will, but that's
subject to the RBI and their policies. Now, their policies are going to be driven partly of course -by inflation, which people talk about and is low, and that's a positive. The
other issue is of course the currency trade deficit, and that's not good. So, when you
want to watch for rate cuts in India, you've really got to watch the currency as well and
what's happening with the current trade account, so you will continue to see flows, but
they won't be what they were in 2014.
R: Ok, that's an interesting point. Let's talk about India then and Indian markets. What are you
watching out for in terms of range? Do you expect that they will continue strengthening in
2015?
NS: Yes they probably will, I mean, there's lot of people on the share who come here
and probably have much better views on the market. My view on the market is you
look at two or three things: you've got to look at interest rates, because everyone is
watching that to see what the RBI will be able to cut. They will, but I don't think you're
going to see massive rate cuts in 2015, and that's partly because of what I just said
earlier, that the currency has to be watched closely. The other things to watch for
close are reforms, and reforms would be of course in the banking sector, addressing
the NPLs, and then the infrastructures. You could watch for ten other things, but these
two-three things are going to be critical for markets in terms of prices and in the
index. Will you have a nice year in 2015? Probably yes, not 2014, more like 2013. So if
you take a two, three, four year of the Sensex or Nifty, whichever index you'd like to
watch, you could be very, very positive. If you just look at the next six to nine months,
you might be a bit disappointed after the year you had this year.
R: In terms of sectors that you think will hold out, for example on reforms you said banking are
something that everyone is watching for closely, but any other themes in terms of the sectors
you think will be top performers going into 2015?
NS: Watch out for infrastructures, because that's the big story. I mean, we're still being
lagged out this year, but I think if the government gets its act together - and I think they
are talking the talk, let's see how they move forward in 2015 - it could be a very
interesting sector, because it's a sector where we really need investments, it's a sector
where returns could be better, it's a sector that has underperformed.
R: It's interesting that you are talking about infrastructures: of course the government has
been pushing this whole "Make in India" thing, we're watching out for several top rust
meetings, but in terms of the government that we've had in place, you were briefly talking
about reforms just now, are you happy with the level of reforms that we have seen? Anything
aside from banking that you think it's going to be a major focus area or a major trust area that
the government should focus on? And how are investors really looking at India given this
reform push that we have seen in the past six months since we've had this new government?
NS: You have a feel good factor since the Modi government came in, but there has
been a lot of criticism about the government not moving fast enough, just talking, a lot
of rhetoric but that's how the world works: you start with rhetoric, you create positive
sentiment and then you start with the reforms. It's going to take a while, I mean, this is
a mega economy, there's a lot of issues that the government has to tackle, one has to
be patient. I think there's a bit of impatience creeping in, saying "well they haven't done
anything yet or they haven't done enough", well, of course they haven't done enough:
they've hardly been around for less than…for about a year! So you've got to give them
time, you've got to look at the key reforms, and the key reforms are the two I
mentioned: one is the banking sector because you've got to address the NPLs. You
know it's not the end of the world if you don't address it very quickly, but that’s a sign
that things are moving in the right direction. Infrastructures are a long term problem,
let's have some solutions here! Again, you're not going to solve all the problems in the
next 18-24 months, but it's at least a step in the right direction. So, my advice to market
watchers is: be a little more patient, I mean, these issues can't be solved in a very short
time. I think the government has started in the right way, building positive sentiment,
and the growth is going to be challenging. You talk about the "Make in India"
campaign, that's a great campaign but it's not just about exporting, it's about domestic
consumption, and that's a thing to watch for this year: will domestic consumption pick
up significantly? It could, that depends on interest rates. I mean, today for example
you're paying double digit interest rates on your housing loan or your car loan or
whatever it is. Could it drop to single digit? If it does, that's a massive boost for the
stock market, for the economy, whatever. That needs the central bank to act, and they
will act if they think they’re comfortable acting, but unfortunately at the end of the day
it also depends on the rupee. So, you know, it's all finally balanced: it could go in a way
that becomes extremely positive extremely quickly, or it could be actually quite a quiet
year in terms of central bank policies, monetary policies, but also fiscal policies. I am
not leaning any way right now, I am sort of neutral. Neutral not because I don't see the
upside, neutral because I think there is too much expectation built in to what people
are expecting in 2015.