Q- How would you rate the performance of Prime Minister Narendra Modi and his government, and why?
A- It's
not an easy task to evaluate the performance of a government because of
the system Prime Minister Modi is operating in, which is highly
bureaucratic and surrounded by red tape. I think he could have done some
more reforms. In my view, elimination of subsidies is good and the
Rural Employment Act should altogether be scrapped. Modi is not negative
for the economy but it seems he is operating under some constraint.
However, so far his performance has been good.
Q- How do you see India when compared to the world given the fact that India will likely grow at 8-8.5%?
A-
Forget 8-8.5 per cent, even if India grows at 6 per cent per year, it
would see huge interest among investors. Most analysts are betting on a
global recovery, but the global economy is still slowing down. It isn't a
recession but a no-growth environment. I don't see the US hiking rates
in 2015.
Coming to the equity markets, the US is an expensive market, whereas Europe is attractive in terms of valuation.
Emerging markets
are inexpensive, while markets like India at 17 times forward
[earnings] are not necessarily expensive. But there are stocks like
Nestle that are trading at 50 times, which is expensive. Therefore,
India is both expensive and inexpensive. You will have to be selective
in terms of sectors and stocks.
Q- Will you be an investor in India?
A- While my exposure to India is low, it's through the India Capital Fund where I am the chairman of the fund. The
Indian stock market
may rise higher in 2015 but not as high as 2014 - at best a 10 per
cent rise from the current levels. If the flows ease in the global
market then it may even impact India and it can come off. Meanwhile, we
are overweight on financial stocks in India. The sector looks good
despite the problems faced by banks as even today a lot of people don't
have a bank account in India and, therefore, the sector has huge
potential to grow.
Q- Where have you been investing?
A- As
an asset allocation I have 25 per cent each in precious metals,
equities, real estate, and bonds and cash. This may not be the best of
allocation. But it's a disciplined approach. Today no one can tell where
the world will go in the next three to five years. But with such asset
allocation I am sure that in terms of purchasing parity I will be better
[off].
I have been investing in precious metals. In fact,
whenever there is a sell-off I had added them in my portfolio. Among
equities, my investment in the US is near to nothing, though recently I
have added some oil shares. My largest exposure is in Asia with
investments in Vietnam, Malaysia, Singapore, Thailand and China. Six to
nine months back I invested in China when valuations were really low and
attractive. In 2012, I had invested in European shares. Some of my bond
investments are in Latin America.
Q- Do you see the euro zone disintegrating following the Greek crisis?
A-
The possibility is high, but it will not happen as the powerful US and
European allies will not allow it to happen. Greece will never be able
to repay and the allies will still infuse money into Greece. This is not
an economic problem, it's a geopolitical issue. Hardliners in Europe
know that if Greece moves out of the EU it will be more damaging for
them than Greece as Russian and Chinese are more than willing to help
Greece.
Q- In such a scenario what are your concerns?
A-
The world economy, especially US valuations, isn't compelling. Interest
rates are so low that there is no headroom for further cut. Corporate
profits are disappointing as revenues aren't growing. On the other hand,
for a country like India there is still scope for a cut in interest
rates. I think India can cut up to 200 basis points. The concern for
India is bureaucracy. A socialist attitude is not good for growth. There
is huge potential in India but that potential will have to be
exploited.
Q- What do you think about Japan?
A-
Abenomics is a failure. The real purpose is defeated. Income adjusted
in dollar terms is tumbling, exports are down in dollar terms, while
retail spending is low. Government debt is increasing and the Bank of
Japan is keeping on buying bond. I see this like a ponzi scheme run by
the government. While the Japanese market doesn't attract me,
international investors are bullish because in dollar income terms
corporate earnings are improving.
Q- Do you see India benefiting from the excess money in the world?
A-
India has not seen much flows as global investors are underweight
towards India. This is because between 2007 and 2013 India disappointed
and it saw a weak currency. The stimulus saw huge inflow going into US
equities, which is why it has become expensive. Meanwhile, this year the
money flow has been in select sectors like biotech and social sector.
Q-What is your view on commodities?
A-
It has been a long time since commodity prices are down. I don't put
precious metals under commodity. For the past three years, since 2011,
precious metals are down and, in my view, they have bottomed out.
Regarding oil, I do not see it going down to $20 a barrel. The people
who see it going down to $20 are those who felt oil would touch $150 a
barrel when it was at $100. I see oil reaching the equilibrium at
current levels and see it moving in a range of $40-60 a barrel.
Some
commodities have bottomed out like iron ore and copper, but industrial
commodities continue to be in the bear market. For agricultural
commodities, we may see a price rise in select commodities like coffee.
Food prices may not see a huge spike as we saw them rising from 2013
till 2014.
Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.
