US market is trading at a 10-year high multiple. Most major markets are trading at least one standard deviation above 10-year average multiples and India is no exception.
What is the state of the global market?
Globally, valuations are stretched. Now what has happened is driven – a) by liquidity but it is also driven by the fact that for the first time after a few years, you are seeing synchronised global growth pickup. b) Corporate earnings are picking up in most major markets. In 2017, almost all major marketsare projecting double digit earnings growth. You have not seen that for a while. And normally even when you saw it, you would see that in the beginning of the year and by the middle of the year the analysts downgrade to correct that. This time for the first time that has not happened.
Markets have run up on the base of strong fundamentals and even reduced political risk compared to the beginning of the year. The French elections are behind us, even the US issue on border adjustment, that risk is significantly lower.
On the back of that you have seen valuations run up but the US market is trading at a 10-year high multiple. All major markets are trading or most major markets are trading at least one standard deviation above 10-year average multiples and India is no exception.
It is something that obviously does matter to us because it does impact where we see value and we have to be just patient and look for the right opportunities or the opportunities where we can get the right terms because of the value we can add to the companies.
Let us shift focus to Indian policy, the goods and services tax (GST). How significant is that for a player like you and what signal does it send that such an ambitious tax reform, with initial hiccups has been successfully rolled out in a country as big as India. It is a complex exercise.
It is clearly a very positive signal. It is not just that we have seen a steady pace of reforms over the last year. GST of course is the most recent. We have also seen the bankruptcy code and basically the whole digitisation of the economy pace has been picking up. There have been multiple reforms we have seen over last year. It is very encouraging and important for us to see that continue.
Does India perhaps become a tad more attractive now that GST is finally in place?
Over the last few years, we have been saying that it is a very attractive destination for us and part of it was basically because of the structural positives of the economy and part of it was the confidence that we would see a steady pace of structural reforms. The good part of GST is that it validates the belief that we had. Today India’s portfolio value right now is the highest our exposure to India has ever been. Now that is just a data point and we hope to increase that but we are quite positive on the outlook here.
Over the last five years, Temasek has deployed nearly a billion dollars that is on an average. Can we expect that trend to continue in terms of Indian investments and will we see a bigger ticket size in terms of Indian deals, what is the rationale as far as India is concerned, will we see this annual billion dollar pumping in continuing?
I would hope we can step that up. Ultimately it depends on finding the right opportunities but clearly from our own perspective, we would like to see more investment into India because of all the reasons I mentioned earlier.
So say $1.5 billion would that be a safe range to look at?
It is impossible for us. We do not have top-down allocations particularly to markets because we look at bottom-up investment opportunities. But let me just say that if we find the right opportunities, the amount of capital will not be a constraint in terms of how much we want to invest in India.
Let us look at your recent investments in India. You increased your stake in HDFC BankBSE -0.01 %. You invested in SBI Life. You are also invested in Crompton GreavesBSE -0.59 %. Which is the most bullish sector as far as Temasek is currently concerned? Is it going to continue to be consumer and financial services or are there any other sectors that you have now spotted for growth potential?
I will say that consumer theme and financial services are going to be the core of our investment strategy. But consumer is more broad based than just FMCG or whatever else. I would say the healthcare services also, I see as an extension of consumer. Consumer can be staples, can be durables and so on and so forth.
The other area which obviously we are excited about is technology and what I mean by technology is not IT services but generally speaking how technology can transform different industries and different businesses.