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Journalism of Courage
While the markets are trading flat and investors are preparing for an expected interest rate hike by the US Federal Reserve in December, R Ganesh, CEO and MD of Tata Asset Management, told The Indian Express that the slowdown in China has emerged as a bigger concern than the hike in rates. He said that the markets have already factored in a 25 basis point hike in rates. Excerpts:
The US Federal reserve is expected to raise the interest rates in December. What, according to you, would be the impact of the development in India?
So, what is the main concern?
The bigger challenge that exists is slowdown in growth in China. In India we have two different views, the finance ministry says that we are insulated from China but RBI feels that we are connected with China. I think it’s very difficult to say that we are isolated from China. If they don’t pick up their growth and demand in commodities, that will keep everyone under check. I think that factor has to be watched more closely than interest rates.
In recent times proxy advisory firms have raised their concerns over various corporate developments. While Tata MF is also an investor in Maruti Suzuki, do you think investors should take proxy firms reports seriously?
I think it is the same as with credit rating agencies. You cannot make your investments solely on the basis of rating and you have to do your due diligence. You can only use it as a supporting tool. The same applies to voting. Investors should not take their report as a basis for voting and they must do their independent analysis and take it as an additional input. It should only be taken as an input and not go by what has been recommended. I don’t think it has evolved yet or has grown mature.
One must also remember that when it comes to Crisil and ICRA, they are institutions but the proxy advisory firms are not institutions and they still rely on few individuals. Though I think that they are above the board and they realise their responsibility. It is all evolving.
The markets are down and foreign institutional investors too have been pulling funds out. How are institutions looking at India?
Everyone is looking at India and its political leadership with hope. While there are problems inside, everyone knows that India has a great future. If there is one country that people are keen talking about other than US, it is India. China is not the story now.
We lost money because we are bucketed with the emerging markets and so when money went out we also saw fund outflow. I think that it was not a conscious move to go underweight India but when they went underweight on emerging markets, India automatically lost. However, I have learnt that people are no longer underweight and are neutral now. People are also talking of India overtaking China on growth front and that will keep India in focus.
Where do you see the opportunity?
Equities is the place where investors can look to create wealth. There are around 8,000 companies listed at BSE but the actual number of companies to invest is around 450 and the universe has further scales down to 250.
Most of the fund managers are getting the alpha between 250 and 500 companies because there is limitation to how much the big companies can grow. So while the large cap companies protect you against any market shock, mid caps are the ones that will generate higher return.
In fact, when the economy grows and money keeps coming into Indian markets, the valuation of these companies will go up in the valuation will go up. No one is going to buy beyond the 500 stocks and so the valuations of all these stocks will go up as people go for high quality stocks. I think, mid caps will generate higher return.
