Market Voice: Andrew Freris, BNP Paribas Wealth Management

'Expectations of 8% growth reasonable'

Andrew Freris, chief investment strategist, Asia, BNP Paribas Wealth Management, spoke to Krishna Merchant about the relative valuations of the Indian markets, the weakening rupee and GDP growth estimates. Excerpts:

Do you feel the Indian markets are still expensive compared to Asian peers?
The Indian equities are the second-most expensive in Asia after Jakarta in terms of the price-to-book value and price-to-earnings ratio (12-months forward estimates). This has been the case with the Sensex for months. The wholesale price index (WPI) continues to press on the market, as it does not seem to go down. Also, sharp rise in fuel prices will further accelerate inflation, which means the Reserve Bank of India (RBI) may have to raise interest rates by 50 basis points (bps) again. We will see a couple of more rate rise by the end of the year. This will not be supportive for the equity markets.

The foreign direct investments (FDI) in India fell 28 per cent to $27.02 billion, a four year low. Do you feel there is concern over stability of capital inflows for India?
The FDI depends on policy as well as performance of the economy. I suspect one of the reasons the FDI has been coming down is because India has not made any significant progress in the liberalisation of the markets, which the West is interested in. There are only suggestions about opening of the FDI in retail and infrastructure, but little has happened.

The rupee has been relatively weak since the past few weeks. Do you see further downward pressure on the Indian currency?
The increase in interest rates should have supported the rupee and should have been priced into the market. However, the Indian equity markets continue to stay weak. A fall in the FDI will not help the rupee.

What is your outlook on the crude oil prices?
To the extent that the Asian economies are decelerating and the recovery in the G-3 economies is not particularly strong, this may put a lid on crude price rise.

Are you concerned about the revision in the GDP growth projections by the government and the RBI?
It is quite unlikely that the GDP growth will fall below eight per cent, but we have to see how the monsoon crops perform, as agriculture contributes 20 per cent to the economy. I think the RBI expectation of eight per cent growth is perhaps reasonable.

Silver has fallen 30 per cent in the past couple of weeks. Do you expect a further drop in silver prices?
Silver has now completely decoupled from gold and could go down further.