INDIAN STOCKS ARE EXPENSIVE; RUPEE CAN HIT 100 A DOLLAR

Oil prices and a plunging rupee have reversed the market rally in India recently. MARC FABER, editor of The Gloom, Boom and

Doom Report, tells Puneet Wadhwa global stock and bond markets are in a bubble zone.

Oil prices, trade war fears, and a plunging rupee have reversed the equity market rally in India over the past few weeks. MARC FABER, editor and publisher of ‘The Gloom, Boom & Doom Report’, tells Puneet Wadhwa global stock and bond markets are in a bubble zone. Markets and central banks, he says, have not learnt any lessons from the 2008 financial crisis. Edited excerpts:

The rupee has been the worst-performing currency in Asia at a time when the S&P BSE Sensex and Nifty50 were at an all-time high. How do you interpret this?

The rupee will continue to go down, trendwise. In the near term, however, it appears oversold and has slipped over 10 per cent against the US dollar this year. That said, I am not optimistic about the US dollar as the other people are. The rupee also lost ground on account of a contagion. We saw the Turkish lira collapse a few weeks ago. The Argentinian peso and Brazilian real too have faced problems. So has the South African rand. All this has led to a fall in the Asian currencies, including the rupee.

I always advocated a tighter monetary policy in India. Many Indians, especially those related to the stock market, would criticise former Reserve Bank of India (RBI) governor Raghuram Rajan for his tight monetary policy, but I applauded him because he stabilised the rupee. Now, it is not stable as it used to be. In the near term, the rupee appears oversold but will continue to go down over the longer term.

How low can it go from here?

In 1990, the Indian unit was around 12 against the US dollar. In 2008-09, it was close to 39-levels and since then, the trend has been down. I am sure the rupee will go past 100-levels. But, whether it will go over this level in six months or in 10 years is a debatable question. It will hit this level in the next 10 years.

What are your views on emerging markets (EMs)? How long can India outperform them?

If one was to compare the valuation of emerging market stocks to the US, they do not appear cheap. However, one needs to evaluate on a case-to-case basis. In India, there are stocks that are trading nearly 50 times the earnings, but other markets have currency-related problems and weaknesses in stock prices. For example, in Turkey, Brazil, Argentina, Mexico, South Africa and in some Asian markets, there are stocks that are not terribly expensive. But they are not as cheap as compared to 2009.

I find Indian stocks expensive. If I were to take a bet, I would rather believe that they would go down in 6-12 months. India’s outperformance is purely in rupee terms. Measured in dollars, this outperformance is not much.

The recent economic release pegs Indian gross domestic product (GDP) for the first quarter of financial year 2018-19 (FY19) at 8.2 per cent. Do you believe this piece of data?

GDP growth is a very questionable measure of a country’s prosperity. In the US, GDP is increasing but the level of credit is increasing at a more rapid pace. Without the deficit of the US government, there will be no economic growth. This is a flaw in the measurement of GDP. Secondly, if I measure GDP in India in US dollar terms, there has been no growth. Well, you may turn around and say that it is not fair to do so. But my argument is that one needs to measure Argentina’s economy in local currency as well. At that rate, their economy is growing at 30 per cent per annum! These are things that are really difficult to measure.

How long can the Indian economy grow at this pace?

There has been growth in India and the prospects for the Indian economy are quite good. That said, India is not problem-free. Prime Minister Narendra Modi is building a number of cities in the countryside. All this causes a lot of hardship to people who live on the land where the cities are being built. If everything goes well, the Indian economy can grow at 7-10 per cent per annum. However, I am not entirely optimistic that this will be the case. A lot will depend on how we measure it — local currency or US dollar terms.