Overall, the market isn't so cheap: Kristy Fong

Interview with Investment Manager, Aberdeen Asset Management

With S4 billion in assets, Aberdeen Asset Management’s Global Indian Equity Fund is among the top India-focussed funds. The fund has outperformed the benchmark – MSCI India – by a good 5.54% in the last five years.

Kristy Fong, Investment Manager, Aberdeen Asset Management tells Joydeep Ghosh in an emailed interview that slower growth will affect earnings of companies and stock prices are still adjusting to that reality. Excerpt:

With the slowing down of the Indian economy and the immediate outlook not looking so bright due to impending elections, are foreign investors still seeing opportunities in the Indian stock market?

Clearly, confidence in India has been leaking away, for the reasons you cite. Slower growth will affect earnings and prices are adjusting. We see opportunities, albeit mainly to add to positions in stocks we already hold; the market overall isn’t so cheap. Other foreign investors may have a different view, of course.   

In July this year, Aberdeen took the call of investing over a fifth of its assets in Indian software companies that are expected to benefit from the sharp fall in the rupee. However, the rupee has since then recovered rapidly and continues to strengthen. Is a realignment of the portfolio on the cards or do you continue to be bullish on software stocks?

That movement is incidental from our perspective: we’re more interested in the fundamental state of their businesses, and both companies have strong franchises.  We don’t ‘make calls’ on sectors, we buy and hold stocks that meet our strict quality and price criteria, periodically taking profits and adding to positions as market circumstances dictate.

We’ve long had stakes in Infosys and Tata Consulting, and they will benefit from the weaker rupee given that their earnings are nearly all in hard currency.

The recently-passed Food Security Bill received a thumbs-down from the stock market. Since fiscal deficit and current account deficit (CAD) are the two key numbers that FIIs are looking at, do you think that their projected targets will be met after the passage of the FSB?

Given the type of equity investor we are, we don’t pay much attention to macro numbers. We’re naturally keen that India starts to live within its means and reduces its reliance on foreign inflows. The FSB threatens to make that task harder. What concerns we have are less on whether absolute targets are met and more on labour, land and market reforms. Structural reform is essential if India is to sustain its previous progress. It needs to rediscover its political will.
 
Aberdeen’s India focused fund manages $4 billion in assets. What is the strategy that has helped Aberdeen's fund grow?

We run a relatively concentrated portfolio which is managed conservatively: we do our own research, buy only companies we’ve met and trust, and invest for the long term.

We don’t look at the benchmark and we see periods of underperformance relative to it as the price of (we hope) adding value over the long term. Thus we try to act as true owners, investing over the cycle much as the actual managers of the businesses we invest in do.   

Unlike 2008, books of the Indian banking sector are under tremendous pressure now. Does it point to a bigger malaise?

With the rise in credit growth non-performing loans will increase for some of the more aggressive banks. At the same time they may be under pressure if they have been funding in the wholesale market. Our bank choices such as ICICI Bank and HDFC Bank have strong deposits and lend cautiously. So we’re not worried.

Where do you see investment opportunities in India, at present?

We like the domestic consumption theme, broadly interpreted, because of the improving demand we are likely to see from demographic shifts, rising real wealth and urbanisation.

This means our portfolio has a bias to long-term opportunities in household goods, financials, autos, cement companies and certain utilities. These type of companies tend to be easier to understand than, say, more cyclical industrials, too.