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Foreigners not invested in India have made a mistake: Marc Faber

I don't think Sensex will go down to 24,000, but valuation of index stocks is very high.

, ET Bureau|
Updated: Aug 16, 2017, 08.28 AM IST
Real estate, banks and insurance companies are still attractive
Real estate, banks and insurance companies are still attractive
Marc Faber, editor and publisher of The Gloom, Boom and Doom Report, has been bearish on the US stock market for some time now. Now, even as Indian markets are relatively expensive, Faber says the long-term story remains intact and that it still makes more sense to own Indian shares than American shares. In an interview with Sanam Mirchandani, Faber said that he is positive on sectors such as banks, real estate and insurance.

Edited excerpts:

You recently reiterated your bearish view on the US stock market. In that case, which are the markets or asset classes that investors should now move to?

The US market is very expensive, and as markets become more expensive, they become more vulnerable to outside shocks. Even if there is no crash, the potential for American shares is extremely limited.What has driven the index is a narrow group of stocks -the FANG stocks and also the semi-conductor stocks -but the typical stocks haven't performed particularly well.I recommend a diversified portfolio of assets consisting of real estate, stocks, bonds and precious metals.With the equity portion, I have maintained for the last 18 months that I would rather own Indian shares than American shares. Now the Indian market is relatively expensive but I still prefer to own shares in Europe and in emerging economies than in the US.

Do you expect Indian markets to correct sharply?

I don't think it (Sensex) will go down to 24,000 but if you look at the index and the stocks that are in the Sensex, the valuation is actually very high. In many cases we have shares in India that sell at 50 times earnings. For me, that is not particularly attractive.

Which are the sectors in India that you would bet on?

Banks are still reasonably attractive.Real estate in India is still attractive but selectively. You have to be price conscious and you have to understand where infrastructure will be built, where cities will grow and so forth. So, real estate, banks and insurance companies are still attractive.

Foreign investors have not participated in the Indian market rally over the last few months. Do you see interest from FPIs reviving?

According to PwC (PricewaterhouseCoopers), the auditing firm, India is basically going to be the second largest economy in the world in 20 to 30 years. I know lots of wealthy families who have hardly any exposure to India at all. But in my opinion, foreigners who have no money in India have made a mistake. Now, should they invest when the index is at 32,000? Well if they don't have any money in India, then I would at least invest a little bit at 32,000 but have a disciplined programme that if the market declined, I would buy more and not sell it goes down.

Do you see the rupee strengthening from current levels?

The RBI, since it came under Mr Rajan and now Mr Patel, has actually managed monetary policy effectively. Their objective was currency stability and not printing money to boost stock prices. The stability of the currency has been very beneficial. The majority of Indian people do not own any shares but the whole Indian population knows something about the currency. The rupee may still go up a little bit.

The Fed is likely to start unwinding the balance sheet this year. How prepared are EMs to withstand the unwinding?

With the Federal Reserve, we don't know for sure what the impact will be. There is no clear co-relation between the movement of interest rates, between period of quantitative easing and tapering off. I do not believe that the Fed will reduce its balance sheet, but just in case they did, I am not sure that bonds will collapse and that interest rates will go up. There are many other factors.Everybody has been bearish about government bonds in the US, Europe and Japan. In the case of Japan, people have been bearish about Japanese government bonds for 15 years and what has happened is that interest rates kept on going down.So, we don't know exactly where we stand.

The bond market in the US in my opinion would rather suggest that the economy is not that strong.That is the message from the bond market. If we look at the bond market in the US, the 10-year is yielding 2.228% at present. Now in France the yield is 0.72%, in Germany 0.45%, in Italy -where everybody said the country is bankrupt -the yield is 1.99%. In Japan, that has the biggest government debt as a percent of the economy of any country, the yield on the 10-year JGB is 0.05%. Bonds is a very complex issue and that has little do with immediate Fed action. In fact, the bond market doesn't like monetisation. In other words, they don't like QE1, QE2, QE3. The bond market thinks that it is inflationary.

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