Bloomberg News

India Should Reduce Vulnerability to External Flows: HDFC Asset

March 01, 2013

Prashant Jain, chief investment officer at HDFC Asset Management Co., speaks in a Bloomberg TV India interview. HDFC is India’s biggest money manager with $18.6 billion in assets.

On the budget:

“There are good sides and not so good sides to it. We must appreciate the circumstances in which it was done. On the fiscal side, a reasonably good job has been done and, of course, there could be some minor slippages or the other way round but that would depend on how crude oil prices and the currency behave. By and large it is a fairly credible set of numbers on the fiscal deficit. My only negative take was that nothing much or significant has been done on the current account and now most people agree that current account is a bigger challenge.

‘‘On the fiscal side, I can’t find any flaws. It is a good job done and there is logic to increasing the planned expenditure also because ultimately the government has to focus on growth. Under the circumstances, within the limited resources that you have, it is a good job done as far as the fiscal side is concerned.’’

On current account deficit:

‘‘Budget is not the only place where the government can act. I am sure they realize it much more than people like me do but current account is a real challenge and the government should take steps to moderate it. Otherwise, we will continue to be vulnerable to capital flows. If for some reason capital flows do not come for even limited periods of time, and the currency depreciates, it could upset your fiscal math also. So current account is the real challenge and that is what the government should be seized of.

‘‘There is nothing in the budget that specifically addresses current account deficit. There are basically three parts to it. One is oil, where demand is inelastic; prices are not in your control and you can’t do virtually anything about it. The second is gold. Gold is also unproductive and you can take steps to moderate the demand for gold.’’

On RBI action:

‘‘Clearly, interest rates have to move down because GDP growth has come off very significantly, demand conditions have moderated, inflationary pressures are moderating very fast and we are seeing extremely weak demand conditions in key consumer categories as well. And the government has done a lot in the last three to six months to manage fiscal deficit a lot better. It was a very tough decision. The worst of fiscal appears to be clearly behind us and since inflationary pressures are waning, the RBI would now certainly do more because that’s the need of the hour. You need lower interest rates.’’

On valuations:

‘‘Historically, our price to earnings has never gone below 10-11 levels. Current P/E multiple is closer to fair and there is undervaluation. Ultimately, interest rates will move down, growth will improve and multiples also will start moving up.’’

On overseas flows:

‘‘We will continue to be vulnerable to both oil prices and capital flows. In 18 out of 20 years we have seen net buying by foreigners. Our growth rates are among the top tier. We will see capital flows to continue in the long term. Structurally, in the long term, India will continue to get capital. The country is emerging as a core asset. In the short term, we are vulnerable to disruption in capital flows.

‘‘We are in a situation where we are not derisked. We hope that government does something to reduce our vulnerability to external capital flows.’’

To contact the reporter on this story: Santanu Chakraborty in Mumbai at

To contact the editor responsible for this story: Darren Boey at

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