'The structural story of India is a multi-decadal story.'
'One should stay invested in that story and avoid reacting to what is happening globally.'
Hemant Mishr, co-founder and CIO of Singapore-based fund manager S CUBE Capital, tells Prasanna D Zore/Rediff.com how investors should play the India story at a time the global markets are selling off on the fears of geopolitical tensions between Israel and Iran and fears of recession in the US.
He also lists three broad themes where investors can put their money once calm and some stability returns to the markets.
"There'll be some ramifications for India," he cautions as he fears that India too could face some ripple effects of the unwinding of yen-carry trade.
- Part 1 of the interview: Markets: 'India Will Be In A Brighter Position'
How much of this unwinding of yen-carry trades will impact India? How much more can India correct from here?
If the central banks come to the fore over the next couple of days, I think the damage to India is potentially another three to five per cent. But if they don't, then it's anybody's guess.
The second bit that's important, and it's a sword that's hanging over everybody's neck, is the Middle Eastern escalation (the simmering tensions between Israel and Iran).
The last thing that the world needs, and surely India needs, when these two factors (unwinding of yen carry trades and fears of US recession) are playing havoc in the market is increased geopolitical tension. If that also happens, then Indian markets could correct substantially more.
What should retail investors, small investors who invest in mutual fund SIPs, who also invest directly in equities, do in the present scenario? What would be your advice for such investors?
It's a wonderful opportunity to invest in India, particularly for retail investors. They normally, unfortunately, end up investing when the market is closer to its high. The structural India story does not change.
India is one of the least leveraged markets in the world. Our credit (debt) to GDP (ratio) is one of the lowest globally, so we don't have that problem.
But the unfortunate thing is when you throw a stone in the sea, there are ripples. That's exactly what's happening in this pool of liquidity (easy availability of Japanese yen at almost zero rate of interest).
Given that liquidity pools are global, you've got this particular event (unwinding of yen carry trades) that's happening in that liquidity pool. There'll be some ramifications for India.
Whenever such kind of economic crises evolve, coupled with geopolitical tensions, it's the retail investors who panic the most.
What would you have to say to those retail investors to soothe their nerves in the present situation?
What would be your advice to them? Where should they invest? How should they invest?
India is an island of calm and an oasis of stability right in the midst of what is happening globally.
Our banking and market regulator -- the Reserve Bank of India and Securities and Exchange Board of India -- must be lauded for ensuring prudential practices, which ensure that we don't run the kind of risk that global financial centres in the US and the UK run. It goes back to the point about India being one of the least leveraged markets that I just mentioned.
Don't panic. The structural story of India is a multi-decadal story. One should stay invested in that story and avoid reacting to what is happening globally.
They should focus on companies with domestic consumption that is the demographic story of India; companies that will thrive on account of Digital India; companies that provide last mile access into tier two and tier three cities.
These three themes are helping in structural transformation of India and which gets impacted very little due to whatever is happening globally. Even if things went south in the rest of the world, I think these (companies) will continue to offer good returns.
If a retail investor has Rs 2 lakh to Rs 3 lakh as cash in hand right now, then how should s/he allocate these funds with an investment horizon of ten years?
For the time being, I would stay on the sidelines. Nobody knows what happens over the next one week. Whether central banks will come in and give some liquidity comfort to the markets or stay away from any intervention.
Once the situation calms down a bit only then I would look at those three themes that I mentioned earlier.
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