Indian markets are at record highs. What is driving this rally? Is there more steam to this rally, or will the party be over soon?

I think in India the reason why we have seen this good market is the reforms Prime Minister Narendra Modi is making. First of all, the tax rules are being changed, and that is a big, big win. The fact that he has been successful in the (recent state) polls, also gives people confidence that the ongoing reforms will continue. These are main factors underpinning this rally. I was worried demonetisation might weaken Modi; but, in fact, it didn’t. He pulled that off successfully. I think the rally will last. One of the interesting developments, of course, is the strengthening of the rupee vs the US dollar. RBI (Reserve Bank of India) did not raise interest rates recently, which is also a positive. A good monsoon will also keep food prices in check.

Are Indian markets expensive? Why or why not?

The averages in terms of P/E (price to earnings) and P/B (price to book) are higher, and that is true not only for India, but other countries, too.

When, by how much do you see an earnings recovery happening?

I think by the end of the year (calendar year 2017), earnings will turn around.

Where does India stand in your EM/Asia preference? Why?

India stands very high, along with China, and will probably move higher because of the reforms. They are the biggest areas where we are investing right now.

Will Donald Trump’s tax cut plans impact emerging markets in a big way?

This is going to be interesting because if Trump is able to get through with this tax reform, it will be putting money in the pockets of the large US multinationals.

Now the question is, what are these multinationals going to do with this money?

It is true that they will put some of that money in the US, but a lot of that money will go into India, China and other emerging markets, because that is where the growth lies. These companies will chase growth. They want to go into emerging territories that are growing fast. So, tax reform in the US will be very good for the emerging markets.

For large IT companies, they already have expensive operations in the US. So, they would be under the barrier, so to speak. They should not be affected very much because wages are going up in India, and in the US, they are able to hire people at reasonable rates. I think they (IT companies) were already very well-prepared for this eventuality.

If the Obama plan, which has been very, very good for pharma companies continues, I think Indian pharma will benefit, just like US pharma companies, because they both stand to gain as the expenses of health-care in America are going up.

I think the big problem for the Indian pharma companies is the USFDA (Food and Drug Administration) approvals. Some of these companies have problems with the FDA, and this is something that we have to watch very closely.

Are geopolitical risks being ignored by global investors?

No. I think everybody is concerned about the geopolitical risks, but they have realized there is not much they can do about it, and so they have to move on and continue investing.

What are the key risks to this rally in emerging markets, particularly India?

One big risk, now (for India), is the situation with Pakistan. If that heats up, that could be one of the risks.

Of course, the monsoon is important to India, too. But other than that, I do not see any major risk.

Which sectors in India are you overweight and underweight on, and why?

We are clearly overweight on some of the industrials such as tyre production, cement, etc. We are underweight on the banking system to some extent, and some of the financial services companies. Ami Shah

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