Expect India's growth to be significantly lower this year: Jim Walker (ET Now)

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

In an interview with ET Now, Jim Walker, Founder & Managing Director, Asianomics, shares his growth outlook for India. Excerpts:

ET Now: Let us talk about the GDP growth. What kind of GDP growth are you expecting from India particularly in FY12 because we have got pretty much a target of about 8% to 8.5% within that range?

Jim Walker: Yes, unfortunately we are looking for significantly lower growth in India this year, around about 7% mark after it being at around about 9% over the last year or so. And that is really because of what has been happening with interest rates which are beginning to take an effect on the capital expenditure cycle and the signs we were seeing from industrial and manufacturing production. So significantly lower growth this year which has put the budget deficit under pressure.

ET Now: When do you believe inflation is going to peak out in India and do you believe more rate hikes are in the offing?

Jim Walker: Inflation is really already peaked in the sense of monetary and credit expansion which is what we look out much more than wholesale prices or CPI. But that the wholesale price index will remain relatively elevated for the next few months and the probability is that the RBI will continue to feed through may be one or two more hikes. Of course that is also warning sure to the government. The borrowing costs for government are going higher. The RBI is trying to tell them the fiscal position is a problem for India and then interest rate rises are required for the government is being profligate. Unfortunately what that means is the balance of growth moves from the private sector to the public sector, from the productive to the unproductive which is not very good news for stock markets or for investors.

ET Now: What are the sectors that the Indian economy that are best placed to invest in the current scenario?

Jim Walker: Well in our view of course when the interest rates are rising and when growth is slowing, it is time to go defensive. So we would be looking at utilities, we would be looking at consumer staples, we would be looking at anything that is basically now in cyclical and avoiding of course the property side, banking stocks and anything again which is in the cyclical front. We would also try and move away from exports because that is more a global call when anything to do with the Indian markets itself.

ET Now: What is your take on crude oil and other commodity prices and how do you expect this is really going to play out for India?

Jim Walker: Well, the moment of course with elevated levels of commodity prices and crude oil prices what this is doing is acting as a consumption tax on India. So acting as a global consumption tax and that is why we were seeing considerable softness in the US and in Europe beginning to appear and of course in the consuming countries that the high commodity consuming countries of Asia we should expect to see significant reductions in economic growth because of these high commodity prices. But of course as economic growth comes off and economic policy has been aimed projecting slower growth as well, then the demand for commodities began to soften. And commodity prices, we expect over the course of the second half of the year, that will come off very sharply and we would be looking for a major rebate if you like in global consumption tax as commodity prices especially industrial commodities come to even 20%-30% may be even 40%. Oil prices might be rather stickier just because of it was operating in the Middle East but we would also be looking at certainly $80 a barrel in the next few months and that is good news for India, good news for anybody who is consuming commodities. It is bad news for the commodity producers of course.

ET Now: Do you believe that the problems of EU are over now since Greece is somewhat able to manage finances?

Jim Walker: I think we are much closer to the beginning of the debt problems in Europe than we are to the end. This is a rolling crisis that is probably going to last for the next 5 to 10 years. Of course there will be blowups along the way, it would not just roll along halfway from one crisis point to the next. There will be actual explosions as countries really fail to meet their deficit targets. People have to realise that the consumer in Europe has rolled over, the trade balances are deteriorating, the high Euro is not helping them. Investors, the business sector are not investing anymore and the governments are having to pull back. So all of the targets for fiscal deficits which have relied effectively in European eyes on an expansion than the economy being produced as a result of cutting back fiscal possessions.

ET Now: Lastly do you believe the US is going to continue to grow at may be a decent pace at least even when QE2 ends?

Jim Walker: Well, I think about 1.8% annualised for the first quarter which is hardly a decent piece in the year of recovery in the US and that is what all the stimulus both from the monetary front and from the fiscal side still there. The fiscal side is going to have to pullback, the government is being forced to retrench that is certainly true for local and state government even more so than the Federal Government. But the Federal Government is going to be forced by Congress to retrench. QE2 is finishing in June. The firm patch that we have been in from around about October last year until the last few weeks is over. We are returning to the softness which is the real underlying strength of the US economy. It is not strong at all, it is soft that is reflected in the housing markets, reflected in the labour market and it is reflected in business expenditure, business investment.

So hope we are going back to I think certainly between 1% and 2% GDP growth at best in the US. Does that mean the QE3 is coming, well after all the carnage that Mr. Bernanke and his policies of course around the world with higher commodity prices and higher inflation, I think QE3 has to be considered lesser or better than QE2. As long as we are going to take them to realise that doing the same thing over and over again and expecting a different outcome is basically just insanity. That is why Einstein said, that is what we believe, QE3 would just be another disaster. But this time I think equity markets would not react positively to, they would look at and say more of the same old story and that story has not worked for the last three years suddenly it will work again. So QE3 is a very dangerous prospect.