The market has moved indecisively so far in 2016? How do you read this?
After the fall since the start of the year, valuations have come down and are now reasonable. We are not in an environment where growth is easy to come by and hence our approach has been to look at companies with structural growth that deliver, on earnings. If we take a longer term outlook for the Indian market, we like Indian companies for their high ROE and good market dynamics. The worrying part was the weak macros. However, now the macros are also stable both on the fiscal and on monetary side, inflation has come down. The overall environment is far more conducive for picking up stocks. So from that perspective we like India a lot. In our regional fund, we have a big overweight on India. Of course there are some delays on legislation front. However, at the ground level there are interesting things happening on the infrastructure front be it roads, electrification or financial inclusion — all of which will strengthen the institutional framework. So, we are very positive on the India story.
Where would you place India among emerging markets?
We need to differentiate among emerging markets. Within Asia, India is our preferred bet, because of the medium term story. For similar reasons we also like Philippines and Indonesia. All these countries have a large and young population and a low credit penetration. Hence the consumption theme here could be a multi decade theme. On the contrary other countries like Korea, for example, has an older population, with very high household debt levels. However, we need to be cognizant of valuations in India. Besides the consumer space, we like autos and private banks. India is number one in emerging markets in our books.
What is your assessment of the Fed's recent comments? Do you see continued uncertainty in EMs?
In the beginning of the year, the Fed or strong dollar was a big risk to Asia. We believed there would be four rate hikes and now it looks like the market is pricing one hike. So, from that perspective the risk to Asia has come down. We believe that we are not going to see a very aggressive rate hike from the Fed.
What are the chances of another China led turbulence?
We need to stay away from the headlines, because negative sensation sells. China's growth is decelerating, but we need to analyse how, where and what .There is a good China and a bad China. The bad China is all about overcapacity, overinvestment, banks, steel, cement all of which is slowing and we do not touch that. The good part consumption, internet, ecommerce, healthcare and insurance — all of which are growing very strongly. Ecommerce companies beat expectations when recent earnings were announced. So, we really need to differentiate the good from the bad. The question is whether the bad part will affect the good part.
We do not believe that a hard landing is likely to happen in China, as there is plenty of ammunition, the forex reserves are high and there is a credit surplus. Though there are talks of a slowdown in export growth, their share of global trade has actually gone up. That gives me confidence that they have not lost their global competetiveness. They do not need to depreciate the currency. Going ahead, we expect the currency to be stable against its basket of trading partners.
What are you betting on in India?
Since earnings expectations remain very anaemic, a value rally cannot sustain. Hence, we are confident that the market will return to companies with structural growth and hence we are not willing to chase commodity companies. We like retail banks, internet and ecommerce, but we cannot invest in that, but we participate through retail banks. We like auto (four-wheelers), healthcare and pharma, IT services and some consumer names. We also see opportunities in ports.