First of all you remain overweight on Indian markets even though some of your Indian colleagues, including Bharat Iyer, are saying that they may be feeling a little bit nervous about valuations here. Are you not worried at all about valuations in India?
Well remember all my calls live within a relative world, so I have to be 100% invested and there are some markets that I prefer above other markets. At this point in time, I am underweight Brazil, I am underweight China, so thats about a third of the emerging market benchmark.
What people are missing on India is the dynamics of whats going on with global monetary conditions. India runs a fiscal deficit, always has from as long as I have been looking at it since the early 1990s, runs a current account deficit, particularly when it is growing strongly.
What matters in India is the cost of local 10-year government bonds and the other thing thats incredibly important is where are emerging market bonds trading and currently the corporate bond index for MB or emerging market bonds that JP Morgan covers has a yield of around 7%.
Lets put this in the context of the Indian economy. You have got an Indian rupee thats well bid, thats gradually strengthening. You have 7% cost of funding for corporate India of their borrowing abroad.
The Indian government can borrow at 7.5% and we have probably got nominal growth around 15% at this point in time, so conditions are very favourable in India.
If you look at the composition of the markets, there are a lot of companies in India that I want to own that are seeing positive earnings revisions and so the only issue the people are struggling with at the moment is valuations.
What we typically finding in capital markets is that if people are worried about valuations and the data points that come out surprised positively, the market will move higher. Clearly if the market sees disappointment, then high valuations will give you more downside risk.