Bullish on India; FIIs will be back if markets rally 10%: Shankar Sharma, First Global

“You only have to spend some time in the US to turn into an inveterate bull on India. I am bullish on India,” says Shankar Sharma, vice-chairman & joint managing director, First Global. “India is too great a country to be down for too long. It will be a dominant economic force in 15 years,” says Sharma in a candid interview to ET’s Shailesh Menon. Edited Excerpts:

What is more threatening for the Indian market — Euro zone or worries about domestic economic and political issues?

Both... though domestic issues have suddenly become more relevant ever since people discovered that India has a budding balance of payment (BoP) problem, apart from a fiscal deficit problem. My sense is that the market is underplaying the Euro zone and US issues and overplaying India issues. India’s problems are temporary and nothing that some sensible economic management can’t fix.

Of course, while we can fix the BoP, nobody can fix the BJP, which is hell bent on thwarting every constructive move the government makes. However, I firmly believe that the state elections will be largely positive for the UPA, which will embolden the government to push through unfinished points like FDI in retail. The overall ‘shortage’ of dollars can be easily made up by FDI in a good year. Somehow, people now are totally pessimistic on the forex front, forgetting that 30 days is a long term with respect to forex flows.

The RBI has applied brakes on rate hikes. Is growth back on the agenda?

That’s best answered by the RBI. The problem is that excessive praise heaped on the RBI in the 2007-08 crisis went to its head. Sure, it managed things right. But by and large, the RBI has been rightly a very conservative central bank. And rightly so...we don’t want a central bank like the US Fed, which showers and eats with Wall Street. But then, the RBI started believing its own headlines a bit too much. And that’s what led to this ill-conceived rate-hike cycle. Hopefully, the RBI can now see that the baby has nearly gone down the drain with the bathwater... the RBI needs to haul this baby back by the ankles. If it displays this much sense, I will dance outside Mint Street, for whatever it is worth.

Has ‘India growth story’ fallen flat among foreign investors? Will they place bets on India growth story again?

I don’t care too much about portfolio investments. That benefits 50 companies, and 25 brokers and investment banks. FIIs, largely, chase momentum; they will be back when the market rallies 10% in three days. FIIs are no great predictors of economic turns.
They are human, and they all want to sell low and buy high, like 99% of the investors in the market. That’s what the school of momentum investing teaches you and that’s the school I belong to, with some refinements, of course.

What is your biggest concern about the Indian market in 2012?

I see excessive pessimism and low self-esteem around me lately. That’s an emotion to be avoided. Life is only a confidence game. Confidence begets capital. You only have to spend some time in the US to turn into an inveterate bull on India. I am such a bull on India. Irrespective of what happens in the near term, I remain absolutely clear that India will be the dominant economic force 15 years out, trumping imbalanced economies and social structures like the US and China. India was the largest economy in the world in 1700. 200-plus years of the British rule saw us get relegated to near last position.

And within 60-65 years of the English leaving, we are back to being the top-three economies (PPP terms) in the world. What does that tell you? That this country is intrinsically great, and you can’t keep it down for too long. Nobody ever gave India a chance of surviving even post independence.

There have been countless external, internal and economic threats. Yet, the country has hung together, fought back together, and overcome crippling disadvantages that the Britishers left us with (apart from some advantages like a rail network, some High Courts and some buildings), notwithstanding what that apologist for the British Raj, Niall Ferguson, argues in some of his books. How can you ever bet against a country like India, given it’s very, very long history of wins over adversity?

But there is hardly anything big happening on infrastructure, which is key for growth.

Ihave argued many times that grandiose projects, like power and infrastructure, are best left to the state. Private firms can never make economic returns from essential services. That’s the core problem. That said, I think we should avoid falling into the trap of excessive infrastructure. Yes, we should make a few good roads, 3 or 4 airports, 3 or 4 ports. That’s all. Look at all countries that have done this....the US, China, Dubai, etc...all have, or will go bust, without any doubt. We just have to build normal infrastructure...definitely not the way China has done it, wherein you have large empty motorways, towns, trains...who can afford all that? Countries that build too many roads, finish up on the road.

So, would you say that India’s slowdown is just temporary?

Overall consumption is still strong, thanks to gold, real estate prices, bank FD rates...and low exposure to equities. The Indian investor has got his asset allocation absolutely right this time around. That’s why I say this is too great a country to be down for too long, and second, investors should never watch financial channels and read financial papers, or listen to people like Jim O’Neill and Stephen Roach. They are all an utter waste of time.

Last year you were bullish on Bajaj Auto. What is your top pick for 2012? Why?

Tata Motors is our No. 1 pick followed by Bajaj Auto. JLR numbers will continue to surprise on the upside...and that was our core thesis when we turned bullish on Tata Motors even when it was making losses. JLR is warming up in three major world auto markets: the US, China and India.