India outperformed the rest of the world throughout the year. Is this decoupling likely to last longer and how do global investors view India?
Indian markets significantly outperformed the rest of the region and other markets. It’s for a very good reason and I think this premium appreciation will continue. It’s hard to say the outperformance in terms of what will happen in a month or three months but I clearly think that over the medium to long term, this outperformance is going to continue.
I would say there are three reasons for this outperformance; the first concerns corporate profits. We continue to see very strong corporate earnings growth. The second is India’s relative performance which is doing better than other emerging markets economically.
It’s the economy and macroeconomic stability, I think the government’s focus on macroeconomic stability has played out and we as a country have stood out over the last seven, eight months or two past years when you see our larger numbers.
The third factor is softer. India is emerging stronger on softer aspects, the way our political leadership has handled recent global events and also ensured that India has gained stature globally. It also attracts more people because historically, given our size in terms of population and GDP, it’s a huge market. So, with a stronger government, it makes more and more people look at India with a positive eye.
“ Back to recommendation stories
At a time when everyone thought betting on the IT sector couldn’t be wrong, IT underperformed. What is your vision of the sector? Is the worst behind us? Should we start taking an interest in the big names in IT?
No, I don’t think IT will do well in the short or medium term. It’s true that in the recent past IT has done well and that’s what the market is for when everyone thinks that’s where the industry is heading and we see a surprise and c is what we saw. I think the IT sector itself will do very well, we are extremely positive about the prospects for the Indian IT industry given the kind of inroads they have made in global markets; they continue to gain market share and we continue to do well in emerging areas of the technology space.
So I’m positive on the IT sector, but I think we need to differentiate between which IT companies are doing well in terms of revenue, earnings growth and what is the outlook for the IT sector in the market stock market, what are the stock market returns and this is where I have a concern.
My concern basically stems from the fact that until about a few months ago IT companies used to say that the outlook is very positive for the next one, two, three years and we have clearly seen that comment change lately for companies saying we have solid visibility for the next two quarters, not two years.
What’s your decision on autos and banks because they’ve already rallied a bit, where do you see them heading from now?
We are positive on automobiles and more on passenger cars and utility vehicles than on two-wheelers. Just as we are surprised by the resilience of stock markets, we are also surprised by the resilience of automotive demand. The monthly figures for passenger cars and commercial vehicles continue to surprise. Underlying demand appears to be quite robust and that makes us positive on the passenger car and utility vehicle space.
The same goes for bookings that new launches get. No one can deny India’s long-term history, even when we have gone through a relatively difficult period over the past 12 to 18 months. The demand for passenger vehicles is quite strong and this is what makes us positive on the automobile. In terms of financials or banks, we used to be underweight financials for a while over the past three years, but gradually we also turned positive and increased the weights in banks in the last two quarters, I would say.
Apart from banks, cars, IT, what are your preferences? Also, what sectors are you completely avoiding at the moment?
One sector we like and are overweight is capital goods, including manufacturing. We are going to see a pick up in investment spending in the country as manufacturing finally picks up after a prolonged downturn.
The type of initiative that the government has taken to get manufacturing back into the country, especially initiatives such as PLI, makes us positive on industries or capital goods as a sector and we are overweight. One of the sectors we avoid is metals. We are going through extremely turbulent times in terms of what is happening globally, Indian companies have no control over the selling price of global commodities and we may see some headwinds as we head towards a period of recession. This is where we believe it is best to avoid companies that depend on world events for their business and pricing and we avoid these companies.