SIMON BROWN: I’m chatting now with Deepak Ramaraju, principal advisor for the [Sanlam India Opportunities feeder fund]. Deepak, I appreciate you joining us on the line today.
Before I delve into some details, India as an economy is the sixth-largest in the world, just behind the UK, growing faster, and all of those above it growing faster, with the exception of China. [It has a] fairly stable currency as well, a fairly stable political environment. In that sense actually [it’s] broadly an attractive investment destination for investors looking for some offshore exposure.
DEEPAK RAMARAJU: Good morning, Simon. It’s my pleasure joining this call. You snatched my words, basically. It’s just a stable political environment that we have, the sixth-largest economy. It is the fastest-growing economy in the world. Today it’s growing at 9% per annum, and most of the economies are in … investment destination across the globe as of now. It’s what China was 10 years back. That’s what India is now transforming into.
So we are looking at more like a stable currency, and we are seeing a seeing a set of huge foreign direct investments opening up into the country with the new BFI schemes introduced by the government. The production-linked incentive scheme introduced by the government has been a decent kind of investment scenario.
SIMON BROWN: As an investment destination, looking at the market, looking at the holdings within the fund, it’s diverse. It’s not dominated. If you look at South Africa, we are at times dominated by the resources, we are times dominated by the financials. Here we’ve really got diversity. For example Asian Paints is going to be fairly uncorrelated with a lot of the other investment opportunities. There’s a Hindustani Unilever. We know Unilever, but it’s an opportunity to invest in a business which for the average investor probably an EM space is simply not available.
DEEPAK RAMARAJU: Yes. So we are a population of 1.4 billion people, which has a huge consumption base. So obviously diversification matters here, because the consumption pattern changes within the country. We have different consumption patterns within the country. When we take names like Hindustani Unilever or Asian Paints they are the broad representation of the consumption team in India, so they actually under the consumer staple kind of firm or business model. That’s the reason I’d like to divest myself in the portfolio to a wide extent. I have a … is very critical in India because we can’t just take risk on particular sectors there, because we make money in all the sectors that we try to invest in.
So there’s a scope of making money in all of the sectors as well. We don’t want to get left out in one particular sector because what we are seeing in the market is there are cycles of change for sectors leadership that’s going to happen over a period of time. In different phases of time, different sectors rally, so we don’t want to be left out from any of the sectors. It makes sense to be diversified and well protected in the kind of market that we’re operating.
SIMON BROWN: If we bring it back for a last question to the economy, one of the trends we’ve seen globally is inflation rising, and that’s obviously in many economies – seeing rate increases. Or, as in the case of the US, those rate increases will come in time. Is India in the same place? Is that a concern? Or is it something which you expect will be sort of relatively benign and able to be handled by the relevant authorities?
DEEPAK RAMARAJU: Yes. inflation is a concern. I don’t deny that. It’s a global phenomenon that the globe is going through. Definitely it’s already been priced in because, if you actually look at the Indian markets, the data is already there and everybody knows that the core inflation is also there, but it’s going to be cyclical. We’re going to see the base factor come into play, and then the inflation is going to be moderated over a period of time.
So I don’t see a significant threat from inflation as of now, unlike what the US is facing, because their … so much of liquidity, and they’re been … printing money. Unlike that, India doesn’t print so much money. That’s been a major factor. So we are not printing so much money that the inflation is going to hurt us too much. That’s been a kind of major difference to what regulators have done.
Moreover we have very good foreign reserves for us to control the currency movements. That also controls the imported inflation to a large extent. So what we are trying to do is in the other country, we have moved away from kind of reducing the import basket wherein we were heavily dependent on the crude inputs. So that is offset by the total number of the IT exports that we other trying now, the service exports that’s been contributed from India.
And now with this introduction of the new BLF scheme, over the next three to five years we’re going to see a lot of exports coming from other sectors like textiles, specialty chemicals, or pharmaceutical for that matter. So these are the sectors which are going to take the leadership in the exports going ahead. So that’s going to offset to a large extent the inflation, and the core inflation is also contributed by the rise in food prices, which has also been kind of dropping as of now. We are seeing the food-price pressure dropping to a certain extent. And that’s going to cool off a bit. I don’t say that an interest-rate hike is not there, but it’s already been priced [in]. The market knows that that’s … any time in 2022. So it’s already been priced in to a large extent.
SIMON BROWN: I take your point on that, especially when there’s a lot around it. For example, balance of trade, the growing export economy.
Deepak Ramaraju, principal advisor for the Indian Opportunities Fund at Sanlam International Invest, I appreciate the early morning, sir.
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