In­dia’s a Pre­ferred Bet in Asia in Medium Term

The Economic Times - - Money -

In­dia is one of the best equity sto­ries glob­ally over the medium term, and we are over­weight, said Christo­pher Chen, client port­fo­lio man­ager, Mi­rae Asset Man­age­ment. In an in­ter­view to Prashant Ma­hesh, Hong Kong-based Chen said earn­ings out­look looks anaemic and the value rally can­not sus­tain. Edited ex­cerpts:

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.

FED HIKE CON­CERNS

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.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.