While global financial markets have recovered from recent lows, some investors are still on a wait-and-watch mode about investing in emerging markets (EMs). Some find it difficult to invest in India given excessive controls. Nilesh Shah, managing director, Kotak Mahindra Asset Management, tells Puneet Wadhwa he expects smart, risk-taking foreign investors to look at opportunities in EMs, considering future growth and cheap valuation, while risk-averse and uninformed ones would withdraw money, looking backwards at the past performance. “Fruits of our growth, entrepreneurial success, should be enjoyed by Indians rather than foreigners,” he adds. Edited excerpts:
March saw some stability return to the global financial markets. Are we out of the woods?
Global financial markets, especially the European Union (EU), China and commodity-dependent countries, are not out of the woods yet. It is likely that at regular intervals, events in the EU will shake global financial markets. China has expanded its credit-to-GDP ratio multiple times in the past 10 years. It is transitioning from an investment-led economy to a consumption-led one. It will provide hiccups to global financial markets at periodic intervals as a side effect of this transition.
What are the chances for Indian markets to go below their recent lows?
India seems to be an oasis in the global desert, which is devoid of growth. Our macros are strong and improving. Our markets have corrected in terms of valuation, but they will undoubtedly see volatility, especially after a fabulous March but unless a drastic event happens, it is unlikely to go below the lows seen in February.
How are foreign investors looking at EMs as an investment option? Where does India stand in their order of preference?
The experience of foreign investors in EMs has been pretty disappointing in the past five years. The MSCI EM Index is down 30 per cent, whereas the developed market (DM) index is up 19 per cent in the past five years. While India has outperformed EMs, it has underperformed DMs. At this point of time, a risk-averse foreign investor can legitimately question the investment rationale for EMs, looking at the past performance.
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