In sectors like construction, private sector bank, chemicals there we see a bottom up opportunity in spite of the near-term slowdown in domestic demand, says Rana B Gupta, MD, Manulife Asset, in an interview with ETNOW.
We have got global nervousness on one hand, strong domestic cues on the other hand. What are you looking at when it comes to India right now?
From a global investor perspective, given the global uncertainty due to trade war and other reasons, investors are looking for a market which has the following characteristics; a) strong domestic demand and some sort of reform to further strengthen that demand for the longer term. b) They are looking for a government with some sort of stability and a lot of political capital which would not rush into fiscal populism. c), Markets which have room to accommodate on the monetary policy side i.e. inflation is well under control.
India kind of ticks on all the three boxes in the current scenario. Therefore, from a global perspective or even regional perspective as an emerging market, India looks better positioned than others from a top down perspective.
Looks better positioned and there are still concerns on a couple of accounts. When it comes to the NBFC space, do you see the news flow in a lot of mega groups — Indiabulls, ADAG, Essel — as a huge issue with regards to liquidity, with regards to how FIIs are perceiving buying into financials at this stage? Or do you see this as a bottoming out and the beginning of a new phase?
Those may not become a systematic issue. Those are more competitive issues but there is no denying that there are issues in the NBFC space. We are looking out for the central bank to maintain the financial stability in the system and we believe that they have enough tools to do that because inflation is well under control. The central bank injected liquidity into the market and we believe that there is more room to cut policy rate.
Also we note that the Indian banks, particularly the private sector banks, are well capitalised, and they have taken care of their bad loans and the deposit franchise is good and for them deposit growth is not too bad. We would assess that in time, may not be immediately but give three, six, nine months for banks to step up the credit growth to at least partially fill the NBFC void. This issue will linger with us for some more time but the issue is transient and not insurmountable.
You have given me a sense of what you like in financials. Where else are you looking for opportunity when it comes to India?
Domestic demand at the moment is not strong, it is rather patchy. So, how should one be positioned? In our view, one should look more on a bottom-up basis and what we are looking at is characteristics of either that the market itself is expanding at a rapid pace due to some reasons. For example, we believe that due to governments focus on public spending, the infrastructure construction market is expanding at a pretty rapid pace. That is one area that one could look at and we are definitely looking at.
The second example is of companies that are growing by gaining market share. One example will be the private sector banks. The other example could be the jewellery sector where the listed companies or the organised companies are gaining market share.
The third example would be where the market is also expanding and the listed companies also increasing the market share. For example, chemical companies due to the US-China trade war. A lot of global chemical companies are looking to diversify supply chain out of China and come to India. Here the market is expanding and the Indian companies are also globally expanding the market share.
So, in sectors like construction, private sector bank, chemicals there we see a bottom up opportunity in spite of the near-term slowdown in domestic demand.
Basically you are saying that stick to quality, do not worry about a price correction which has happened in these names. They may look like bottom-up stories but that is where value is. Cases in point a NBFC like Bajaj Finance or jewellery company like Titan. Valuation should not be a hindrance on a longer-term basis. Is that what you are saying?
On valuation, you have to take a slightly longer term call and on valuation, as far as we are concerned, we are happy to pay up for better quality names. Avoiding a value trap is also essential. For example, there could be companies who appeared to be valued but generates no growth. Let us be clear that we are in India for growth and sustainable quality growth with good cash flows. If those companies trade at a slightly demanding valuation, we would be rather tolerant of it keeping the long-term view in focus.
Let us define that long term because what I am picking up from you is that India is looking relatively better, that everyone is positive on good companies and cash flows. How soon would we see earnings growth kick in? What kind of timeframe are you looking at?
Long term is cleaRead More – Source