Top Investor Exits India - Must Read
Commodities trading guru and hedge fund manager Jim Rogers has sold his holdings in Indian companies and exited India because, he says, the National Democratic Alliance (NDA) government has failed to live up to investors’ expectations. The chairman of Rogers Holdings Ltd, who said in April that he was becoming disillusioned by India because the Narendra Modi government has been all about talk and no action, believes the Indian market lacks any new drivers to propel it. “I am sure Modi is a smart guy, he enjoys good press, and he makes a lot of friends for India. But I, as an investor, after almost a year-and-a-half, have decided to move on to other places, partly also because stock markets are not going to be particularly good for the next year or two,” Rogers said in an interview. Edited excerpts:
During your last interaction with us, the Modi government was close to finishing a year in office. You bought into India last year after the Bharatiya Janata Party’s (BJP’s) victory under Modi, and had said that you were set to take a call on whether to remain invested in India. Are you holding on to your Indian shares?
I did wait a little more time (after the last interaction), but now I have sold all my India shares. I did sell my India shares as I don’t see anything happening. The market was high, and investors had anticipated great things, including me—even if he (Modi) were to do things, the market had already discounted some of that because it had gone up a lot, and there was nothing new coming from Modi. You can’t just invest on hope. Even If reforms started coming, it may not be enough to make the markets go higher, because markets have already factored it in. If the reforms are substantial, the markets may go higher. No indication of that.
So you’ve exited India. You bought into India last year, and as you said, the markets have done well since. Did you therefore make a good deal of money when selling?
I don’t like to talk about how much money I have, or how much I made. I am not complaining about my investments in India. Let us leave it at that. I may see myself returning back to India at some stage if Modi starts doing things, or if the markets go down a lot—some stage can even be a long time away, but not at the moment. If Modi made the currency convertible, if he made the markets open to outsiders, then I would have to be back in India again. So far Modi has been doing worthwhile things like addressing some social issues—I am all for that, and that is great for a lot of people—but India needs more.
"If Modi made the currency convertible, if he made the markets open to outsiders, then I would have to be back in India again"
- Jim Rogers
The situation is getting better in India; the rupee has been reasonably stable as compared to other emerging market currencies, inflation is coming down, interest rates are set to go down, the fiscal deficit is under control and lower oil prices continue to help.
Well, you say that. But Modi had the largest mandate in modern history—no recent politician had what he got. But if he can’t implement reforms, then who can? Is anything ever going to be done? I think it is an accurate statement that no recent Indian government had this kind of mandate. Yet, very little reforms has happened. I am sure Modi is a smart guy, he enjoys good press, and he makes a lot of friends for India. But I, as an investor, after almost a year-and-a-half, have decided to move on to other places, partly also because stock markets are not going to be particularly good for the next year or two. And if I am going to be at some place, I would rather be at a market that is either depressed, or where dramatic changes are taking place. The India market is not depressed. If markets all around have problems, it is going to impact India, too.
"Your central bank governor is probably the best in the world"
- Jim Rogers
As someone who has watched India for a long time, where do you see the country headed? What are the challenges for India—is it job creation for the youth that meets their aspirations?
India has very high debt-to-GDP (gross domestic product) ratio—it is higher than many countries. Studies have shown that when countries have a high debt-to-GDP ratio, it is difficult to grow at a reasonable rate. I don’t really see much going for India right now except Modi, who is not doing anything, when he should be or could be doing a lot. Your central bank governor is probably the best in the world.
The basic reason you mentioned, about India having to create so many jobs, is one of the reasons why I am not investing in India. India historically, or at certain times, has been one of the most successful countries in the world. You could have ruled the world if you were aggressive, but those days are not coming back—India is held back by too many restrictions and regulations. Go around the world, and you see smart successful Indians everywhere—this means you don’t have enough opportunities for these people back in India. You have saved your farmers by making it illegal for foreigners to own more than five hectares—how on earth can an Indian farmer compete with an Australian farmer with 50,000 hectares? In history, India has been one of the great agricultural nations of the world—you have the land, the people, weather—God gave you everything. And then, he also gave you Delhi to mess it all up.
"God gave you everything. And then, he also gave you Delhi to mess it all up"
- Jim Rogers
I, as well as others, thought that Modi was going to change all this. With all these crazy laws and regulations, you make it difficult for foreigners to invest in India. With investments comes jobs. Not just foreigners, your bureaucracy makes it difficult for even Indians to invest in India. It is difficult to take money in and out of India—even as an investor, if you bring money into India, there are all kinds of regulations. Indians would rather like jobs and a better economy rather than all these laws, regulations and bureaucracy.
Governor Raghuram Rajan has been criticized for being stubborn on interest rates.
Central bankers are supposed to be criticized for things like that. Central bankers are supposed to maintain currencies and low inflation. If you want to do something about the economy, you should call out Modi or Parliament and not the central bank. Central banks that cut interest rates because of politicians—such countries usually have economic problems, currency problems, and all sorts of other problems. In my view your central banker is doing the right thing—he understands what banking is all about, he understands what currencies are all about and he understands the economy. The more criticism he gets, the better—that means he is doing what the central bank is supposed to do.
"I would expect that this year or next year, we will begin to see a lot of problems worldwide"
- Jim Rogers
What is your take on what is happening in China right now? The reality is that foreigners hold very few China shares.
China is pure noise and hype and it is exciting to talk about the Chinese market that has moved a lot. Virtually no foreigners own shares in China. The press is talking about short-selling, but there is hardly any short-selling in China. The Chinese market has done better this year than the American stock market. So you in the press should be talking about the American stock market—but for you that may not be exciting enough as compared with China. I bought Chinese shares during the two-three days when its market collapsed—on the really serious down days, I bought more. I like to buy low, and I found that in history, usually when you buy during panic, things will turn out to be okay two-three years down the road.
I would rather be in China than in most parts of the world, because its stock market is still somewhat depressed. The Chinese stock market is still below 50% of its all-time high. The American stock market is near its all-time high. The situation is that for the first time ever, we have had six years of huge money print across the world. The world is floating on a huge artificial ocean of liquidity and that is going to end sooner or later—it is looking to be sooner. Many markets are going to suffer in the future as this happens. I would expect that this year or next year, we will begin to see a lot of problems worldwide. In 2008, China had a lot of money saved for a rainy day, and when it started raining, they began spending their money. This time around, China is facing debt—historically China has not had much debt—so China, is not going to be so insulated the next time around. I bought Chinese shares in the panic, and some of them are more down now because the Chinese markets went down again after I had bought. I feel that I should own something and China and Russia are the couple of markets that are depressed, where they are changes, and that is why I own these shares.
Is this the best time to buy gold?
Not for me. I own gold and I expect another opportunity to buy gold within the next year or two. I suspect this will happen. Interest rates are going to go higher, which will make the US dollar go higher. When there is turmoil, many people seek a safe haven, and the first thing they go to is the US dollar. Nearly everyone thinks the US dollar is safe—it is not! But people are not going to buy the yen or euro and you can’t buy the renminbi, so a lot of money will go into the US dollar, and the dollar will go higher. When the dollar goes higher, commodities will not do so well. So gold will suffer. What I suspect will happen is that the dollar will turn into a bubble in the next year or two as everyone is buying into it. Gold will be down and if I get it right, and if the dollar turns into a bubble, I will sell the dollar and put it into gold.
"I would expect the Fed to raise interest rates. The Fed always follows the market"
- Jim Rogers
What do you think the Fed will do?
I would expect the Fed to raise interest rates. The Fed always follows the market. People think the Fed sets the market, but if you go back historically, you will see interest rates usually move ahead of the Fed, and the Fed follows along. Interest rates will go higher, and when that happens, at some point it will affect markets around the world, including the US. At this point, everyone is going to call the Fed, asking them to save us. The Fed is run by bureaucrats and academics, and they will then come riding to the rescue—markets will heave a sigh of relief, go higher, and that will probably be the last big move upwards for stock markets around the world. After that, we all come to the realization that central banks are not as powerful as we thought, and there is only so much they can do. That is how we see the world developing over the next couple of years.
Is the bull run in the commodities market over for good?
It is certainly down. In the scenario that I outlined, it is hard for anything to go up, if we are having financial turmoil around the world. If what I had mentioned takes place—where I sell my US dollar and buy gold—then gold will have its comeback. Then gold could turn into a bubble three-five years from now. I don’t know if this will happen or not. I hope it does not. Other commodity prices may also go up in the future, because supply has not kept pace with demand. Things like iron ore, oil—there are no new supply streams coming. The reserves of all major oil companies are down, and we are not really finding new oil except for fracking. But frackers cannot make money at current crude prices. So fracking is being slowed or curtailed. In the meantime, oil reserves everywhere are doing down. The supplies for most commodities are not strong enough or large enough to keep prices down for ever.
"They (start-ups) are worth millions and billions of dollars right now, but will they be worth so much when the next turmoil comes? Probably not"
- Jim Rogers
Why don’t you invest in start-ups? Be it India, China or Southeast Asia, the start-up ecosystem is booming.
I do not invest in private companies. I feel more comfortable investing in companies where I think I can sell, if and when I want to. I don’t have the interest or the time these days to get deep into and understand these start-up companies. I do not understand technology well enough to get into such start-ups. Today, there are 100s of unicorns with billion-dollar valuations—this sounds like 1999 in the US. In 1999, the bubble was in a couple of small pockets in the US. Now, this bubble is all over the world–China, India… Now there are hundreds of entrepreneurs in their garages who think they are worth millions and billions of dollars. They are worth that right now, but will they be worth so much when the next turmoil comes? Probably not. There are spectacular opportunities for start-ups—there are hundreds of them, but most of them will fail. Most of the companies that were on everybody’s lips in 1999 don’t exist today—most have fallen apart and disappeared. Some of today’s start-ups will make it—they will become huge. Alibaba and Tencent look like they will make it big. Write down the list of companies today, put it away, and look at it 10 years later. Then you will say, ‘wow that was a bubble’! more
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