Banking sector still robust and attractive: JPMorgan

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Banking sector still robust and attractive: JPMorgan

Rukhshad Shroff, Investment Manager and India Country Specialist, JP Morgan Asset Management is betting big on India. In an interview to CNBC-TV18 Shroff said that he is still positive on India even though global environment is quite uncertain.

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Q: You do not have a single metal stock, if you leave aside Reliance, a single commodity stock in our top ten. I do not know what happens down the list, but is that a space, global commodities, that you are generally cautious on and underweight?

A: We are underweight in the global commodity space. That is for two reasons. The global commodities sectors are dependent to a much greater degree on what happens to global demand and supply, so that is a key variable. On a long term structural basis, it is much easier to find high conviction ideas that are dependent on India, to a larger extent than on whether the US growth recovers or whether Japanese trade improves or whether Germany's industrial production improves.

Generally speaking, I find it easier to be able to pick stocks in the Indian markets dependent on Indian growth. At the moment we do have some metal stocks, but we are under weight the space.

Q: From your profits in the Tata Motors holdings, have you been able to buy yourself a Jaguar?

A: No. I am not able to take profits from my fund into my personal account. It has done well. The Tata Motors stock has done exceedingly well and we have a meaningful position. That certainly aided performance overall.

Q: Where is the market right now in India? Can you liken it the 2004-07 kind of phase, where you did have three-four years of 20% plus, in some years much more kind of an earnings trajectory? Therefore the market trended very nicely for four years before just bubbling out a little bit. Do you think we are in year one or year two of that kind of an earnings growth phase?

A: I would not make the exact same comparison for two reasons. One is, in the 2004 stage, we had similar economic growth prospects. The economic thrust sometime in 2002 and early 2003, we had a recovery. In terms of economic recovery, we are about nine months into it. That is a similarity.

There are two broad dissimilarities. One, valuations are perhaps a little less attractive now, than they were back in 2004, because we are above long-term averages already. That is one difference, which could hold back the aggregate level of returns that we saw back then.

The second difference is we had a period where global economic environment was much more benign. At the moment, that is not a supporting variable. The economic environment globally looks very-very uncertain, whereas five years ago it looked much more supportive.

In terms of corporate earnings, in terms of economic growth, we are at the early stages of a recovery and that is encouraging and a key under pinning for the sources of incremental returns from here.

Q: On incremental returns, are you increasingly looking at allocating more money outside the Index heavy weighs. I know you run a large product and you can't effortlessly buy into smallcap names, but non index largecap kind of names maybe marketcap of half a billion to one billon dollar marketcap, do you think you need to increasingly allocate more to those names to generate returns with the Index reaching not very inexpensive levels?

A: The Index is not a determinant of what we buy. It is a measure of our performance for clients to evaluate what we have done a good or a bad job. It is not that we buy stocks because we are in the index and not buy stocks that are not in the index. We are conscious of index and index related risk. Without doubt, we do have a number of stocks that are not in the index in our portfolios. A number of large stocks actually are available very attractive and they do not seem to make it to the index and that is true of many markets.

Even in the larger midcap space, we have had a number of stocks, where we had positions for many years. We have large position. Some of these companies have excellent growth prospects, very attractive management capabilities to capitalize on that growth. We do have funds offshore and offered to Indian investors that invest in smaller companies. We have a JPMorgan India Smaller Companies Fund that invests specifically in small companies and there are very attractive opportunities in that space too.