Sukumar Rajah, managing director and chief investment officer (Asian Equities), Franklin Templeton Investments, tells Neha Pandey that sectors related to domestic consumption are good opportunities from a medium- to long-term view. Edited excerpts:
Where do you see the markets headed to in the next six months to one year? Any concern on the global front?
Indian equities’ strong performance in the current year was driven by easy liquidity conditions globally, low interest rates in the developed economies and strong domestic performance. Going forward, fast-growing emerging markets (EMs) such as India may remain key beneficiaries of the excess global liquidity and should continue to witness inflows. However, global investors with a short-term orientation may shift focus to other markets offering better valuations. The short-term direction would be dependent on the earnings and supply issuances.
The global economy continues to exhibit divergent trends, with EMs growing at a fast clip and developed countries seeing a slow growth. It is important to see how factors such as global imbalances, currency fluctuations and inflation play out.
What should be a retail investor’s strategy? Which sectors look good?
Investors need to focus on all asset classes in line with their risk appetite. They should focus on long-term goals and keep in mind inflation-adjusted returns or ‘real returns’. Systematic investing remains an ideal strategy, as it offers an easy and effective way to participate in equity markets, reducing the impact of volatility.
We believe sectors that can piggyback on domestic consumption and investment themes are good opportunities from a medium- to long-term view. These will take advantage of the structural transition in India, with growing income levels and increased infrastructure/capex spending by the government and corporates. India remains undeserved in financial services, but the growth in personal incomes has increased demand. Given the low penetration of banking and financial services, companies in this sector have huge growth potential.
Sectors such as realty and telecom are mired in controversies. What is your outlook on these? What should an investor do, if he/she is already holding these stocks?
Recent events in telecom and realty companies will have a negative bearing on the perception of corporate governance practices. But all companies need not be seen in the same light. Volatility in prices can be used to take positions in some stocks with good fundamentals and management.
We have very little exposure to the real estate sector, due to lack of transparency. We like some of the south-based realty players due to the revival in the demand from the information technology (IT) and IT-enabled services sector. But we still feel that the sector does not offer compelling valuations.
We continue to be positive on banking, financial services and telecom companies. We expect consolidation in the telecom industry with new entrants facing losses and increased medium- to long-term traction for 3G services being introduced.
Are feeder funds getting impacted by overseas crisis? Would you still advise investing in such funds?
The impact is dependent on the type of fund and its investment objective. For example, EMs, especially in Asia, remain relatively well-placed compared with the developed markets. Strong savings growth, lower debt exposure of households and governments with relatively high gross domestic product growth help.
Global diversification remains a sound strategy for equity investors. It allows to diversify across markets with varying return potential, while reducing the region and economy specific risks. We believe it makes sense to search globally for the best bargains available. Limiting the search to one country could mean missing out on valuable opportunities and losing the benefit of greater diversification.
