Investing in India, the Economy and Major Sectors

Strategy in India: In the emerging markets space, India's fundamentals look relatively attractive in spite of the fact that valuations are not cheap. Although we have had a relatively strong performance from the Indian market in the short term, the fundamentals remain promising. It doesn't mean that growth and recovery will come within the next quarter or so. All the other fundamentals are in place. There are good companies with balance sheets that are not stretched. These companies have got good products, distribution systems and services. They are recognised by their customer base, so these companies will do well over the longer term.

On corporate earnings picture: We expect earnings over the next two-three years to strengthen from here for quite a few sectors which are currently soft. We think that the average should be somewhere in the upper single-digit range, but a section of top stocks should do better than that over the long term.

On Loan waivers announced by some state governments: Loan waiver is a tricky tool, because if it happens too frequently, what happens is that the effectiveness of this tool no longer works. The flip-side to that is that you get into the situation where people take loans they have no intention of paying back. That's the bigger problem that needs to be watched out for. We don't think it (loan waivers) is a big risk. India has done a pretty decent job in the past three years or so with some unique, courageous policies which will do the economy and the market good in the medium and long term, but in the short term these are challenging stresses to manage. I am optimistic about the prospects of Indian reforms going forward but in the short term, it doesn't mean there won't be some volatility. There will be some quarters where growth will hit a speed bump but India is moving in the right direction and foreign investors are cautiously excited.

On IT sector: IT companies tend to get quite harshly judged. They are strong franchisees with strong cash flows, global businesses and not particularly expensive. We do like the IT story in India, but our approach is to invest in quite concentrated positions.

On Pharma sector: This is a very demanding, challenging business. What we tend to look for is companies with reasonably diversified portfolio, decent level of margin, which are reasonably healthy.

Outlook on the banking sector: The RBI is trying very constructively to push the resolution of the bad loans as quickly as it is sensible. They seem to be a lot more proactive than in the past. There is still a lot of work to do, but we think that these resolutions are moving in the right direction. Having said that, the non-performing loans are still a challenge and therefore when we invest in the banking sector we tend to look for companies that have a strong balance sheet and a cleaner asset pool.

On emerging markets and tightening of policy by the US Federal Reserve: Emerging markets central banks do have an arsenal of tools that they can use to moderate the effects of rising interest rates in the US. The Indian regulators are well positioned to insulate it to some extent.