India story pretty good regardless of who sits in Delhi
Jonathan Schiessl, CIO, Ashburton Investments
Jan 11, 2019 | Source: Economic Times
On view on markets this year: Positioning is interesting. Clearly, India had a phenomenal last quarter, particularly compared to other emerging markets. It is interesting that banks are breaking out. The midcap industrial space is catching up a bit as there is more confidence in the recovery broadening out to some of the industrials as well. Bank stocks and industrials are interesting parts of the market and obviously, we are seeing some of the weak rupee beneficiaries giving back some of the gains of last year. IT and to a certain extent pharma have been pretty poor. But clearly, there is a lot of volatility throughout the year. Foreign investors will be very much focussed on the upcoming election in a few months. There will be jitters around, but broadly speaking, from foreign investor's perspective, if the dollar continues to come off a little bit and outlook of the US interest rates is not quite what market was previously thinking, I think emerging markets as a whole looks a good safe bet and India will get its share of flows.
On outlook on IT: I will certainly agree with you. I think outlook for IT still looks okay. The market in the short term is just looking at currency moves, but obviously the US economy is probably peaking and rolling over, but we are not predicting a full-on recession in the US. It needs to slow down from sort of sugar induced highs of the tax cuts of last year, but still we are predicting it should be okay. Outlook for a lot of big Indian tech companies that have big US businesses still look okay to us.
On effect of elections: The issue is where the market is as we approach elections, the valuation point. If you look at India versus other emerging markets, it is trying to get almost historical high premiums over other emerging markets. There is room for some volatility going into that. But quite frankly, we are not too concerned. We are focussed on obviously stock markets and the outlook for earnings. Politics can clearly influence that in the short term. Over slightly longer term, we are not too concerned. The key is there is a stable government at the Centre and some of the reforms that have been pushed through over the last term are maintained, which we believe will be the case and hopefully, there will be some further reforms to come. GST still needs to bed down. There are some of the policies that have been enacted. They still need to take a little bit of time before they bed down. But ultimately, the India story still looks pretty good to us regardless of who is sitting in Delhi.
On view on metals: Obviously, there are lots of concern about every data coming out of China. The market for some reason has for a long time exhibited a love-hate relationship with everything that comes out of China. Clearly, at the moment, it feels like there is a bearish sentiment, which has been in the ascendancy for some time particularly if you look at the price action of Chinese indices. The big debate is if the government going to do what it has done in the past to stimulate the economy. There is some of that which seems have been coming through in the short term, but I think the leadership has accepted a slowdown in the growth rates of China and continue to try and reorient the economy away to a more consumption based economy. We do not think China is going to collapse just yet. There is plenty of bearish people out there and actually China might surprise on the upside in the period ahead. We have seen sort of mini stimulus measures in China over the last few months and as a result of these, mini stimulus activities should come through in the data. We think actually China might surprise in the short term, but we are not expecting a big bang huge stimulus impact ahead.
On investment ideas: The obvious one that is well flagged by most people is obviously the rural economy and rural beneficiaries. It would seem that would get a bit more policy activity to try and help some of the rural stress we are clearly seeing. Otherwise, to our mind, the economy continues to gradually improve. It looks like investment cycle is picking up, capex is starting to pick up although still not uniformly across the board. It is still quite selective, but certainly as I said in the beginning, it is interesting some of the industrial space does look interesting. And banks continue to be probably one of the most liquid and easiest ways to play the improving economy and obviously from a financial perspective, the bottoming out of the NPL cycle.
On the sectoral churn: We certainly have been a little bit more defensive as we approach a certainly more volatile period. So value as a style has not been working for some time, certainly in emerging markets and India as well. So there are some value plays with high dividend yields that look fairly sustainable to us to ride through the volatility. Industrials have been quite an awful sector for some time. As I said there are certain pockets that are moving up and we are still seeing not much liquidity in some of the mid and smallcap space. There is a little bit better value in some of those areas as well. But from a sectoral perspective, I guess people are keeping it quite simple at the moment and they are playing away. They are playing the rupee and that is probably the easiest and the simplest ways to play the sector at the moment.