India will resume previous pace of growth, says CFA Institute CEO

India's economic issues are cyclical and not structural, and we believe India will resume its previous pace of economic growth in coming years, says Franklin

Economic slowdown in India is cyclical and not structural, says Margaret Franklin, President and CEO, CFA Institute. In an interview to Samie Modak, Franklin, the first female head of the CFA Institute, says Indian need to invest in improving governance. Edited excerpts:

What's the outlook for equities in 2020? What are some of the key geopolitical risks that will impact sentiment?

There are many influences on the global economic outlook which have yet to play out, making predicting what will happen in 2020 difficult – Brexit, trade relationships, several important elections. As far as geopolitics is concerned, one can never predict specific triggers. We know where the hotspots are and anybody interested in the economy and markets must keep an eye on what is happening in these places, but there is no way to say which of the hotspots will flare up next, and what the consequences will be.

What's your take on the economic slowdown in India? Do you expect a sustained slowdown or growth to bounce back?

India’s economic issues are cyclical and not structural, and we believe India will resume its previous pace of economic growth in coming years. There are many factors that favour this. The government is responding by reducing taxes and taking policy measures required to spur investment. The banks are slowly emerging from the bad loan problems, and there is a lot of domestic as well as foreign capital waiting to enter the system.

Do you think India is an attractive investment destination from a global investor point of view? How have some of the governance-related issues, accounting scandals at some smaller firms impacted the country's image?

Indian markets have seen a crisis of confidence in governance, and a consequent flight to safety by investors. We believe that if Indian companies invest in improving their governance, the cost of equity will come down significantly for the market. The industry has rightly been criticised for mis-selling and putting short-term profits ahead of customers’ interests. We need to pay more attention to professional competence and ethical behaviour. If we do this in every market in which we operate, we will gain investors’ trust and contribute to their long-term financial well-being, as well as to fair and transparent markets.

What's your take on the growth of India's wealth management industry?

Wealth management has changed significantly in the past few years everywhere in the world. There are two primary drivers – technology and regulation. We can see the same forces acting in India as well. We believe, India’s wealth management industry is poised for strong long-term growth. It takes time for rising incomes to translate into rising wealth, so we can expect the growth of the industry to be slow in the beginning and pick up pace in a few years. Companies that invest in talent and infrastructure will be able to benefit from the growth when it comes.

How does the cost structure compare?

We believe that India’s wealth management industry is very competitive in terms of costs. Sebi has been pushing the industry in the right direction, and the pain that the industry is going through will position it well for long term competitiveness.

Any regulatory changes required to make the Indian landscape more attractive?

Over time, Indian financial markets need to converge with the rest of the world. Indian companies have excellent leadership and management capabilities. India also has a very good regulatory framework and an effective regulator. Despite the recent hiccups, India’s credit markets have grown significantly in the past few years, and we expect this growth to continue. As Indian investors become better at understanding and evaluating credit, the bond markets will become an important source of capital.