Valuations in India cheap & attractive: AMCs

Speaking to CNBC-TV18, Mihir Vora of HSBC Asset Management said this is a very interesting season given the background of markets. It's a unique quarter with both local and global issues hitting the market. He adds that valuations are looking attractive, but now earnings are going to determine the markets course.

Pierre Lavaud, Managing Principal of JetFin feels that the mood among hedge funds is cautious. The expects returns from China and India to be lower than last year, he informed CNBC-TV18. India's valuations are looking cheaper, he added.

Lavaud said that the fresh interest in commodity is leading to speculation and volatility. He added that the correction in January was a surprise and it is late to get out of the market.

Vora feels that it’s a very interesting earnings season; given the background with which the markets are entering the season. "It’s in some sense a unique quarter where both local and global issues are facing the market on one side - that’s the concern, and on the other side, you have markets down 25% from the peak and stocks down 50%-70% - so I would say in a bit of a situation where valuations are really looking very attractive. But now it's going to be earnings which are going to determine the stock specific movements. So I can't make a general  statement; but it will be really interesting to pick the stocks where values have become very attractive and earnings are not going to this point," he said.

According to Vora, the policy measures in various sectors especially to control inflation are unlikely to impact the March quarter results because that quarter has already gone past. However, these measures may de-rate certain sectors where one feels that the government is likely to take some strict actions in terms of pricing control etc, in those sectors, he added.

Also, he feels that commodity prices would affect certain sectors like capital goods, engineering etc. "If you ask the companies, most of them passed through clauses in most of the contracts. But my guess is that not all the contracts are passed through. So we will see the impact of commodity prices on these kinds of companies in capital goods, construction and even automobiles to some extent and see how it goes So we will have to take very active calls post results in this quarter."

Lavaud feels that China and India share the same story more or less at this stage. He said, “The expected returns today are less than they used to be last year. Those markets have been the best performing in the recent years and obviously this year we should expect a little bit less from those markets. But there are still good points related to India, which should make investors bit more comfortable with the investment case. For instance, the P/E ratio now in India is much less than they used to be so they look a bit cheaper. Inflation is not that much of an issue anymore in India in the sense that the economy activity is still there and that is a parallel that we can draw with China as well. These are the kind of things, which are fairly positive also in India.”

Lavaud admits that the pressure on redemption is fairly low for hedge funds and there are obvious reasons for that. “The first reason is that the correction that happened at the beginning of the year took everyone by surprise and now it might be a little bit too late to go out. So at this point there is no reason why to make any redemption. The second reason is that most of the hedge funds provide fairly illiquid possibility in the sense that usually they have quarterly redemptions, sometimes they have lock ups and it means that for an investor it is not possible to exit on the short-term. The third reason is that most of the investors who have entered India also the ones investing in hedge funds, have invested from long-term perspective in India. So for those ones, there is no reason why to go out and they will stay,” he said.