We have been cautious on the Indian markets for some time. Some of that cautiousness has played out with the markets correcting over the last few months. But we feel that the combination of some of the macro concerns that we have had are still around, the primary being the rising interest rate environment in the country. 

We believe that the Indian economy and the corporate balance sheets have not yet fully factored in the cost of higher funds and that is one thing that we need to keep in mind. The second concern has now got addressed to some extent with the oil prices correcting the way they have over the last one month or so. But our house view is still that there is still an upside risk to oil rather than a downside risk. It is not a big issue at this point in time. 

But we need to keep in mind, that till the elections, there will be some political uncertainties and that will have impact on the investor sentiment. These are really the three big things to keep in mind. At the same time, the valuations have come down but not to the extent where we can call it value at this point in time 

On FIIs’ sentiment towards India : From the foreign investors’ point of view, India has always been a long-term structural story and we believe that there are very strong building blocks that will take the GDP growth forward at a more sustainable level over the next few years. But at this point in time, the foreigners are still a bit concerned on the valuation front. Among all the major emerging markets like China, Brazil, Korea, Taiwan, etc, India stands out as perhaps the only major emerging market which is still trading at above its historical average PE multiple. All others are trading below their average multiples. So, valuation is a key concern for foreign investors. So long as we continue to have strong domestic equity inflows, the valuation premium is likely going to remain.

On the rising cost of capital in NBFCs: The situation is definitely improving on the liquidity side over the last one, one-and-a-half months or so. We need to be worried about the second derivative impact rather than NBFCs’ defaulting. It is not really a big system-wide issue. There are a few NBFCs that might still have some problem but many other NBFCs will still be able to survive but at the cost of giving up growth. 

On India trading at PEs higher than historical averages and key takeaways: Going forward into the second half, we will probably need to deal with the full impact of the liquidity issues and the higher cost of funding. But FY20 definitely looks like a better year because banks are a big segment of the index and the corporate banking issues seem to be close to be getting over or the NPL ratios are close to be peaking out. FY20 definitely should be a better year. 

On early signs of capex revival and how to play that theme: Very selectively. The segments where we are seeing the capacity utilisation inching up are steel, certain durables segment and some capacity improvement like autos. But the broad-based capex cycle recovery is still elusive at this point in time. Once again, the bottom of the capex cycle revival would be linked with the housing market bottoming out because housing is a big driver of economic growth and consumption for cement and other items. We clearly need the housing market to recover for the capex cycle to recover in my view 

On themes for 2019: Our overweights are still the pharma and IT services sector. We quite like the domestic, especially the rural consumption story. There are plays on the rural consumption stories like tractor manufacturers and a few select FMCG companies. We also like from a long-term perspective.