India’s structural promise remains intact: JPMorgan

India stands out among emerging markets because of its technology skills. Fund flows would remain strong, especially chasing the digital theme, says Filippo Gori, CEO, JPMorgan, Asia Pacific. In an interview with Joel Rebello and MC Govardhana Rangan, Gori says the China Plus One strategy of multinational corporations could see some manufacturing move to low-cost nations like Vietnam and Thailand. Edited excerpts from the interview:

This pandemic is being compared to the one the world saw a century ago. Does history tell us how economies could progress from here?

I see the crisis accelerating existing trends more than anything else – for example we were on a path of digitisation and innovation and the pandemic is a catalyst to accelerate some of those transformations. You can look back in history when Europe had the Spanish flu or plagues but I don’t think learnings can be properly extrapolated. My impression is that central banks and governments have acted very quickly and ensured there is no liquidity crunch. But our view is that this situation will strain the world economy for a while.

But what more can they do? What’s next?

There are a few arrows left for the central banks around the world including negative interest rates. In India, the RBI has been very pro-active and aggressive, injecting unprecedented liquidity into the system – effectively cutting rates by 175 bps – and back-stopping some credit risk. What happens next will depend on the speed and strength of the economic recovery but it’s likely many markets will require continued policy support through 2021.

One fallout of central banks’ action is capital flows. Do the fundamentals justify the inflows in emerging markets as an asset class?

As an asset class EM has some challenges and some countries within this have greater risk than others in terms of economic concerns. However, India, has received a lot of positive interest from global investors over the past few months and its valuation premiums are unlikely to fall in isolation since the country’s structural promise remains intact. In terms of technology, India has done a lot in this space and this plays into the core global themes around consumption and digitisation.

One argument is that it is only one company that has cornered majority of flows in India in the last few months. Is there a broader theme?

You often need a leader to show the way, which can help promote further flows and the importance of that shouldn’t be discounted. In terms of other themes, the China Plus One theme is interesting. For example, we don’t expect a single country to be the technology factory of the world and we believe more tech companies will establish broader supply chains across more countries to reduce the single-country risk exposure. India can definitely play a role within this.

We have seen a lot of things moving to Vietnam and Thailand. Why has it not moved to India and what needs to be done?

Labour costs in China have reached a point where it is cheaper to move supply chains to other markets, and Vietnam and Thailand stand out as potential destinations for labor-intensive manufacturing. But it won’t be immediate and may take three to five years to build new supply chains outside of China. If there is one area where we feel strongly that India can play a leadership role, it’s in tech. India is on the cusp of a digital transformation and that is making people excited and they are seriously considering India like never before. For example, despite the lockdown in India, JPMorgan’s operations have continued to operate very effectively.

What are the top destinations in the region according to you?

Not in any particular order, but Japan, China, Australia and India. We have seen some large transactions in the capital markets and M&A. There is good dialogue with companies analysing opportunities in these markets that could bode well for the future.



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