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India on a better wicket compared to the global market: A Balasubramanian


“There is a high probability that we might have a surplus during the year and currency stability has also been a lot more better. And growth expectations, even the reiteration of growth, which could probably be over 7% by the Reserve Bank of India governor himself, I think goes to show that overall things are a lot more under control,” says A Balasubramanian, MD & CEO, ABSL AMC.

Let us begin by getting your outlook on where India stands at the current juncture because despite all of the conjecture when it comes to the debt ceiling negotiations in the US etc., it seems like India is in a sweet spot in comparison. Would you concur?
It looks like that India is on a better wicket given the fact that on the macro side we are seeing a significant improvement and stability. One, inflation is a lot more under control when it comes to the question of taking a decision on interest rate. Second, the current account deficits have improved quite significantly from deficit now the deficit is quite narrowed. There is a high probability that we might have a surplus during the year and currency stability has also been a lot more better. And growth expectations, even the reiteration of growth, which could probably be over 7% by the Reserve Bank of India governor himself, I think goes to show that overall things are a lot more under control.
And lastly, the company’s financial numbers, which have been reported for the March ending, most of the company, almost about 50% to 60% of the companies have beaten the analyst expectations, which essentially means they are reflecting the broader level structural change that we have been looking at driving, seems to be paying in terms of delivering better performance.

All in all, if I see a competitive global market, definitely India is on a better wicket.

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The markets are no longer bummed out, they are no longer cheap. If earnings are expected to grow at 12 to 13%, or 14 to 15%, looking at the estimate, do you think that should be the maximum expected return from here for next two, three years?
I think returns definitely could get muted, given the fact that India has been outperforming the market for quite some time. We must also note the point that the current juncture at 18000 index, I think the Nifty is trading at about close to last 10 years average, not discounting any potential upside that will come in both economic growth as we move towards the elections and then beyond.

And also the corporate earnings can continue to be the major driver. Those are not getting discounted this part of time, given the fact that the Indian market has outperformed for quite some time.

But my own belief is as interest rates start coming down the next year and supported by good growth coming in, probably we should see some kind of premium valuation starts coming in, which probably should see it coming in next year. But the return expectation point of an equity, given the fact that earnings deal versus the bond deals, if you even today look at it, bond deals are much better. Therefore, it is not fair to expect some kind of return in the equity as we have seen in the past.

But anyway, the expectation should always be kept somewhere close to about nominal GDP plus 2 or 3%. And beyond that, whatever comes, it should be taken as a bonus for any investment in the market.

Do you think large part of the rally in the fixed income market is also over because inflation has peaked out, Reserve Bank of India has hit a pause button? I mean, they are not going to cut rates now, which means that the fixed income rally is also over?
Fixed income rally, probably we can say that the longer end, it is not discounting two things; one, the current account stability, liquidity is getting better. The 2000 rupees note to be submitted back to the bank before the end of September will improve the overall liquidity in the banking system therefore, demand for G-Secs will increase.
The RBI post announcement of dividend, which was two times higher than what was budgeted in the numbers, all of them actually is going very well as far as the fiscal is concerned.

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And that is why I think the bond market in the long run will rally. But as we start seeing moderation on the inflation and then globally, if the interest rates are cut, right now we are on a peak cycle and we believe that incremental hike will not come but as they start thinking about rate reduction, if it happens in the US, then followed by India, we will still see rally coming in the short run of the curve, which is basically if we take one year 7%, two years 7%, three years 7%, 10 years 7%.

Ideally speaking, the curve should be a little steep that is why I believe that in the short run the curve will come down next year. Therefore, from an investor’s point of view, the dilemma would always be, should I play the fixed income market through the long duration or should I play the fixed income market through the short to medium durations? We suggest the short to medium duration would be more ideal for investors to look at it, given the fact that yields are still high. Therefore, the carry in the portfolio is also a little better.

Last time you said I am examining the new SEBI proposals for mutual fund TER. I am sure by now you must have done the numbers. What could be the impact for your AMC? What could be the impact for the industry? What could be the impact for everybody?
All the things in the proposal are leading to a TER reduction on overall basis, therefore ideally speaking on the basis of this math, it will have an impact on the revenue, it will have an impact, of course, on the bottom line which of course the market knows about it and everybody has been factoring in.

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But having said that, these are the consultation papers, I am sure in the best interest of the industry which has been a bigger driver for the capital market growth and we still have a long way to go, we will make the right representations.

I am sure SEBI’s intention is to not hit anybody on the profitability. At the same time, they are also looking at the longer term orderly building of the next round of growth. So, I am sure a fair representation from the industry would also be heard by the regulators and basis which we are quite hopeful some middle path will be taken which will make it more neutral and not have an impact irrespective of the size of the industry.



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