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    Modi is a reform superstar, he has outperformed others: Bill Maldonado

    Synopsis

    India will take leadership growth from China, and the outlook for Asian equities is good for next 2-3 years, as growth is highest in the world, said Maldonado.

    ET Bureau
    In an interview with Prashant Mahesh, Bill Maldonado, chief investment officer-equities, HSBC Global Asset Management, said the world shall have a stable dollar with a bias to strength.

    Edited excerpts:


    What is your outlook for the global economy and equities?

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    We are in a recovery of this global financial crisis. We have been living in a fragile equilibrium where the main forces in the economy are balanced as we have relatively low demand in the world which is easily matched by supply and capacity.You have an output gap and the economy could produce more. That means inflation is very low but growth is also very low, and in order to stimulate that we have had very accommodative monetary policy in most parts of the world. We find ourselves in a position where all the major economies in the world are working quite well. The US has close to full employment, Japan has come out of a trough and China has stabilised its economy. The world has fired from all cylinders for the first time in a while. Despite a scenario of economies doing well, we have a disaffected segment of population, who feel they have not participated in the recovery or the wealth affect. They may have lost jobs due to globalisation, or immigration, they feel unhappy and abandoned and they have voted for populist policies or politicians. We are living in a very austere world where governments have been worried about their balance sheets.However, people now want progrowth policies. This is a very fundamental change and it means we are going to add a fiscal boost to this strengthening world economy.This is welcome and good news for equities and corporate bonds.

    How worried are you about Donald Trump's economic policies?

    Trumps policies are pro-growth, talk of tax cuts, deregulation and improving infrastructure. There are some concerns about anti-globalisation and protectionist policies. However, we believe our fears of worstcase scenario are unlikely to materialise. Majority of his electorate are the middle class and lowermiddle class, not college-educated people who brought him to power.They are used to cheap goods. If they put barriers to trade, you will see price rises. That will damage his support base and he will be unpopular. Despite his instincts to be protec tionist, there is a limitation to what he can do before he hurts himself.There is a balance of views in his government. This may put the growth side of the agenda in the driving seat, and not the protectionist side.

    So, where is the dollar headed?

    It is very hard to argue against a stronger dollar. So the question is more for us -are we going to see another 2015, where dollar was so strong that emerging market currencies lost as much as 20-30% against the dollar? Are we having a repeat of that? The answer is no, a lot is really priced in and many of those currencies are cheap. They can't get significantly cheaper. It means we shall have a stable dollar with a bias to strength.

    Will the US Fed go in for the three rate hikes it has spoken about in the coming year?

    In 2004-06, over a period of two years, the Fed hiked rates by 4%.We don't think that will happen.Even the two-three hikes that it has spoken of could be at a very slow pace. We do not think the rate hikes will derail recovery or asset prices.

    What do you make of the demonetisation move in India?

    The data on demonetisation suggests the impact is not as large as people feared initially. In many reforms, there is a trade-off between short-term pain and long-term gain.

    Modi is a reform superstar. He is outperforming all others in the world. In less than three years that he has been in power, he has achieved a lot. He has got GST through, and demonetisation by itself is an amazing achievement.Clearly, there are consequences to these reforms in the short term. It looks for the time being we have a government that is prepared to think and act long term.

    As investors, we wish other leaders should take such a mediumto long-term view. We are positive on the long-term growth implications for India. All these steps will enable India to take leadership from China, which is finding it harder to grow fast. India has the demographics, it is starting from a low base and there is a lot of potential here.

    What is your view on valuations in India? Mid and small-cap shares have seen a sharp rally over the last two years...

    When I take an international perspective, India is never cheap. Small and midcaps have had a very strong run in the last one or two years, but they are more of plays for domestic investors with little participation from large investors. If I take the large-cap space, which is of interest to large investors, they are trading at about fair value. There are some undervaluation opportunities and some stocks are overvalued. The undervaluations in India are much more on the cyclical side. People have been playing defensive in India so far. They have not liked financials, materials, energy, consumer durables and they have preferred defensive sectors such as healthcare, consumer staples for several years. That has created an unsustainable valuation gap between cyclicals and defensives and that's unwinding now and is going to continue. It's a period of time where you look for value, longer term growth and there are good opportunities in India.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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