He says it a given that when the US recovers, interest rates will go up and dollar may strengthen and money will come back home in the chase of higher yields and better performance. So what is imperative is that a country positions itself as an attractive investment destination for the future in the long-term through the cyclical basis. So it is about creating the right environment for foreign investors, he says.
According to him, the India growth story is still intact as this is a large domestic economy. Besides, India is rather competitive in a lot of areas, especially, when it comes to exports. He says India's demographics, industrialization, urbanization and the huge potential that this country offers, makes India attractive in the long term.
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"If an investor were to take a medium to long-term view, then the Indian consumer doesn't look like it has been fully played yet, it is playing out. The manufacturing sector is another good story overall. IT the usual suspects still remain intact. Infrastructure is going to be a big story because India can add several percentage points to its GDP by getting the infrastructure right. That again provides huge opportunities for foreign investors," he told CNBC-TV18.
Shankar says Africa is the market to watch out for as there is no one Africa, it is 54 countries. And by 2035, Africa will have more people of a working age than either India or China. He says there is huge opportunity in Africa in the infrastructure space. It is estimated that Africa is currently spending about USD 30 billion a year on infrastructure and that needs to go to USD 100 billion a year.
He says the StanChart business in Africa has grown top-line at 15 percent and bottom-line at 21 percent CAGR over the last five years.
Below is the verbatim transcript of V Shankar's interview on CNBC-TV18
Q: Let me begin by asking you the current macroeconomic context that we are operating in continues to be as far as the economy is concerned continuously in turmoil. India hasn't managed to escape whatever else is happening in the world, give us a sense of the economic recovery if at all in the world?
A: I think it is a three speed world, clearly, Asia is still on a growth track, America is recovering and Europe is still struggling. To your point about India being caught up in this turmoil, no country is immune to it today. We are very much a part of a globalised world and a globalised economy. So that is the positive and the negative of that.
Q: As a global banker with extensive experience of what is happening all over inflows/outflows the key concern in India is the American recovery that you mentioned and while it is good news for the world economy, for India it may not be that good news, the fact that there is a sense although that is debatable that ultimately the huge amount of easing that we saw in the United States will be rolled back and that is playing out on stock market sentiment in India. What would you say to that debate?
A: When quantitative easing started, more of the emerging markets were complaining about that. They were complaining about the creation of an asset bubble, which was true and now that the quantitative easing is being rolled back, there is complaint about a withdrawal of money. I think it is a given. With America recovering, interest rates will go up and dollar may strengthen and money will come back home in the chase of higher yields and better performance. This is what happens when you have true open capital markets.
Q: As far as foreign institutional investors (FIIs) investment is concerned, we have seen some efforts by the Indian government to boost FII investment, but we have also seen that despite whatever you do at home, factors like the one that you just mentioned drives sentiment. How would you position FII sentiment, going forward, what are the key triggers that you see coming forth in their investment decisions?
A: I think you cannot drive a car by just looking in front of your bonnet, you need to look 200-300 yards in front of you and not just look in front of the bonnet. I think your approach to attracting the foreign investor is exactly the same. One is to get concerned about short-term volatilities, which are a given today.
Q: Short-term volatilities are a given and what you are saying is that they will continue to be so?
A: They will continue to be so. You need to position yourself as an attractive investment destination for the future in the long-term through the cycle basis. So it is about creating the right environment for foreign investors in terms of protection, rights, return, overall attractiveness, your ability to come in and ability to exit. That is what will drive in the long run for an investment in any country.
Q: What is your sense of the efforts that have been made, the last budget in some ways was a watershed one for the Indian economy and we have now seen the new administration, the new finance minister in some ways trying to clean up the slate, what is your sense of all the efforts that have been made so far?
A: I think the last several months has been very good in terms of the finance minister's push precisely exactly what you are talking about and when you do vigour and enthusiasm in terms of making India attractive again, the results of these things take years before you start seeing the benefits. So you have to give it time.
Q: While the finance minister has been working hard and more of that is expected on the foreign direct investment (FDI) reform front and several other measures, let us pick up one thing of immediate worry as far as the Indian economy is concerned and it is of course a big global issue. This is the currency volatility that we are seeing, the rupee diving south of 60/USD, making a marginal recovery, the currency markets, the way they are playing seem to be both driven by sentiment and are not perhaps picking up the cues that the Indian government would want them to pick up, do you agree with the play that is happening as far as the currency markets are concerned?
A: I think currency markets are driven by sentiment, partially by economics, but also largely by flows what we talked about with interest rates going up in America, money coming back home that has got a significant impact in exchange rates. So it is multiple factors, which play into the exchange rate equation, I do not think anybody in the world can claim to know every in and out of that.
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