Expect inflows to continue in EMs, remain bullish on India: Adrian Mowat

In a CNBC-TV18 interview, Adrian Mowat, MD & Chief EM Strategist, JP Morgan shared his outlook on the market. He also spoke about how the Indian economy has fared in three years of Modi’s rule.

Below is the verbatim transcript of the interview.

Latha: Market is at all-time high, are you getting a sense that this is the time to go out and buy despite these very tall valuations?

A: When we look at the statistics here, three years since the general elections in India, the markets, the dollar based investor is up about 15 percent, so that has outperformed EM by about 8 percent over the period, which reflects a lot of the success that the Modi government has had in passing reform, which has made the global investor more confident on the potential growth of India.

Even though the markets are around this new high, it is interesting -- when you look at the longer-term charts, the compounded returns in EMs have been relatively low. So I am still very bullish on the asset class and India is part of that story and we are expecting ongoing inflows into emerging markets. As the global asset allocator, we still remain very underweight EM, begins to accept the story of earnings growth is very much in place throughout emerging markets including in places like India.

Sonia: In your sense what kind of a rally can we see from hereon, are we looking at a sustained uptrend where this market can even outperform other Ems before the end of the year?

A: I do not think India will outperform other EMs, our rating is neutral. All our ratings are relative to the asset class. So a bull case is another 10 percent up in EMs, so India would be performing in line with that. So that would be a return in the high 20s for the full year which is a pretty decent return.

Now the issue with the Indian market is a number of things. There are sectors in the Indian markets that are significant such as IT and healthcare where there isn't a particularly good trend at this point. There are issues with trading with United States, there are issues with relatively strong currency. So we are underweight those plus underweight consumer staples, as we do not think there is good value there and we have been buying in some of the cyclical parts of the market but again valuations are high versus history but we think they will be supported and as we move into 2018, there is going to be a material improvement in the growth rate in the Indian economy and we think that will feedthrough the better earnings environment.

For full interview, watch video...