While some of the active/global macro foreign funds have been underweight on India, long-term investors, including sovereign funds, have continued to remain committed, says Nitin Rakesh, managing director and chief executive, Motilal Oswal Asset Management, in an interview with Puneet Wadhwa. Edited excerpts:
Have the markets discounted the worst or will they remain range-bound and perhaps drift lower?
I think Indian markets are reacting in line with developments at the global and domestic fronts. Uncertainty over Europe, political and economic factors, as well as stubborn oil prices, have added to the concerns.
The possibility of Greece’s exit from the euro zone has opened a completely new dynamic, something that wasn’t envisaged even as the euro was launched years ago. It remains the immediate serious concern for world markets and will limit any major upside to the markets till we have clarity on how this issue will be handled.
How much of a worry are the crude oil prices, widening current account deficit, inflation and the rupee at this stage for you?
Crude oil prices are coming off the recent highs, in line with all other commodities. However, we may not stand to benefit much, either on current account deficit or the fiscal deficit front because export demand is also coming down and the Indian rupee has fallen sharply in the last few sessions.
Maintaining this balance is the primary source of worry for the markets and unless we see some encouraging signs, on sustained softening inflation and commodity prices, the markets will likely stay under pressure.markets space. But, we have a twin deficit problem, whereas most other emerging markets do not have this issue to deal with. At this point, we can only say India’s underperformance should be a short-term phenomenon. While some of the active/global macro foreign funds have been underweight on India already for the past few quarters, long-term investors, including sovereign funds, have continued to remain committed.
Can you highlight a few stocks/themes that you are recommending your clients at the current stage?
Consumption, especially consumer staples companies, with strong consumer brands and pricing power, as well as export oriented companies – those which have dollar revenues and rupee costs should benefit significantly, and should undergo a PE (private equity) re-rating.
Is the worst over for the banking space given the recent result of State Bank of India (SBI)? Or do you think it is an isolated case?
It may be too early to say that the worst may be over for the banking sector in terms of asset quality. SBI has obviously surprised the street in a big way, and it’s definitely a signal of how the cycle may be turning.
My sense is that the banking sector would see its bottom in terms of asset quality either in the Q1 or Q2 of FY13. Markets would start to discount such improvements in advance and investors should look out for these signs.
How are you allocating money across the portfolios and segments (equity, debt and commodities) you manage?
Realising that the markets only give limited opportunities to accumulate great businesses at reasonable or cheap valuations, we are advising clients to commit to the equity portfolios with a long-term perspective. At the same time, the current interest rate environment also offers some great investment opportunities in the fixed income space – short-term funds as well as increasing appeal of duration/gilt funds due to the monetary easing/interest rate cycle. We are also recommending clients to allocate a certain portion of their assets to global growth assets like Nasdaq 100. This will provide a balanced portfolio positioned for the right mix of growth and capital preservation.