Sanjay Shah, MD and co-head, Morgan Stanley India, in an interview with the Economic Times, discussed the FII's interest in India and other aspects of the economy. Shah applauded the finance minister's announcement of non-applicability of MAT (minimum alternate tax) on FIIs from April 1, 2015. He said that the step has passed on the right message to the FIIs, who are positive about the government's initiatives. However, the resolution of past legacy issues remains a challenge for the government, added Shah.
Standing apart from Emerging Economies
India's unique and strong macro and micro aspects are keeping the FIIs' interest intact in India, said Shah. He went on the explain that the controlled inflation, low-interest rates complemented with an uptick in growth and a sensible budget is all serving as an interesting factors for the FII play in India. Moreover, Shah projects broadening out of the FII inflows and resurgence of the domestic mutual fund flows over the next one year.
Shah noted that India has created its unique identity among the emerging economies, where it stand as one among few nations with positive growth momentum. He supported his view by explaining that investing in emerging economies is no more an inclusive process; rather there is a need to be country specific. Each economy has its own nuances and forces driving its performance.
Valuations are not expensive
Meanwhile, Shah does not feel that the bad monsoons followed by a bout of ongoing unseasonal rains will severely impact the economic activity or markets unless the problem extends to multiple years. Further, Shah said that the abundance of forex reserves, downfall in oil prices coupled with monetary softening in three of the biggest economies will restrict the impact of the US rate hike on India.
At the same time, Shah does not consider market valuations as either expensive or cheap, but in the middle range. He appeared more concerned over the lack of float in the Indian markets, which is just $100 billion at present. Shah emphasized on the need of widening of capital markets through listing of more new companies via IPOs while he appreciated the SEBI's efforts of encouraging new companies to go for listing on the exchange.