India offers higher growth prospects than other EMs: Julius Baer’s Mark Matthews

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The corporate tax rate cuts announced in September by Finance Minister Nirmala Sitharaman have made India a competitive market globally, said Mark Matthews of Bank Julius Baer & Co in an interview with CNBC-TV18.

“The tax cuts on September 20 for the corporate sector, I think, it is impossible to say it is anything but a positive. It makes India competitive globally and hopefully, it will take some time to happen, but companies will invest and hire more and then privatisations are continuing. So we had IRCTC yesterday and I hope Bharat Petroleum Corporation (BPCL) by the end of the year,” he said.

He continued: “In the telecom sector Reliance Jio ending free calls to other networks shows that the war in that sector is over. The only problem is the banks – with this Punjab and Maharashtra Co-operative Bank (PMC) which shows you the saga of the banks and their relationship with the non-bank companies continues. But on the whole, I would say it looks better than it did a month ago.

Matthews added: “Emerging markets (EMs) remained the structural disadvantage which is simply that the US dollar is a strong currency and the US offers, primarily in its technology sector, strong earnings growth and people want earnings growth and so they don’t need to go around the world to find it. They can find it in the US.”

Matthews said that the Indian market offers higher growth prospects for investors compared to its emerging market counterparts.

“India does offer relatively higher growth than the rest of the EMs. When you are looking at India, inside India, it feels like the growth is very sluggish but relative to Brazil, it is good. Brazil is growing less than India. So in an environment like this, globally where EMs are at a disadvantage because people don’t want to lose money in the currency but at the same time, they are looking for growth. I think India comes up balanced.”

However, he pointed out that a lack of job creation and private sector investment make India a less attractive destination for investors.

“The thing that is the biggest distraction for India is the absence of job creation. I think the absence of job creation is linked to the very slow pace of growth in these small and medium size enterprises which is a legacy of goods and service tax (GST). Of course, GST was implemented several years ago, so it should have been worked out by now. I am told that even the automated process of filing the taxes is very complex and slow. So the problem with India is the jobs growth and would also add the lack of investments from the private sector – not a risk but it certainly makes the story less attractive.”

Matthews called the corporate tax rate cuts announced by Sitharaman last month a step in the right direction.

“I think the tax cuts are a very good step in the right direction and there is some talk about income tax cuts, which would also be beneficial even though only a small segment of the Indian population pays taxes, they are the rich people and if they do have tax cuts, they will be incentivised to spend and hopefully hire more as well.

“So I think over the last month, we have seen quite a sea change in the focus on reform in the government but these things don’t happen overnight, we cannot expect them to – it will take at least half a year or a year for it to trickle through into the real economy. The markets price in future events around six months before they happen anyway, so I feel it is fine,” Matthews added.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

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