May 03, 2013 09:57 AM IST | Source: CNBC-TV18

Overweight on India; consumption story intact: Aberdeen AMC

Adrian Lim of Aberdeen Asset Management continues to remain overweight on Indian market, with a positive view on consumer staples sector. He believes the India consumption story is very much intact.

Adrian Lim of Aberdeen Asset Management continues to remain overweight on Indian market, with a positive view on consumer staples sector. He believes the India consumption story is very much intact. 

"There is a lot of good quality growth in the market despite the falling gross domestic product (GDP) numbers over the last year or so. So, although the short-term has been encouraging, our long-term position has been unchanged," he told CNBC-TV18 in an interview.     

Commenting on one of the fund house's top India holding, Lim says he would advise long-term investors to stay invested in Hindustan Unilever.

Shares in Hindustan Unilever were up on Tuesday, after parent Unilever Plc, along with Unilever NV, made an open offer to acquire 22.52 percent of the company at Rs 600 a share, a premium of about 21 percent over Monday's closing price. The stock rose as much as 20 percent in early trade.

Lim feels Rs 600 a share is not a good price for long-term investors of HUL.

On Infosys, Lim says he is looking for some changes in the way the IT major is being organised. He says Aberdeen is holding on to Infosys so far because of its strong cashflow. 

Below is the edited transcript of Lim’s interview to CNBC-TV18.

Q: Have you changed your stance on India in any way in the last few weeks given that commodities have started coming off which seems to have put India in a slightly more favourable light to a large number of global investors?

A: If one looks at commodities market softness, one can see that if they’d get full transfer of some of these savings, the cost pressures on quite a few operators in India should begin to alleviate. Our stance remains overweight. Broadly in the market, there is a lot of good quality growth despite the falling gross domestic product (GDP) numbers over the last year or so. So, although the short-term has been encouraging, our long-term position has been unchanged.

Q: Let me ask you about a few of your top holdings because you would have got a pleasant surprise on Hindustan Unilever (HUL), a stock which you hold. How would you approach that situation as a long-term holder, will you tender or will you weight it out?

A: The key phrase is ‘long-term holder’ and although it is quite nice to see the share price recover to almost its highs within the last 12 months, for long-term HUL stock holders, it has been quite a ride in the last six months. We have seen the price fall dramatically when the royalty hikes were introduced late last year and now we see a very dramatic recovery during these last few days as well.

It doesn’t change the long-term view. We like consumer staples market in India, it has really got a couple of decades to go before it catches up to the Asian average in terms of penetration and consumption of the consumers. Unilever has got some very strong brands in India, they have been around for decades, it has a very extensive distribution network.

If you are a short-term holder, Rs 600 might be a pause for selling but as long-term shareholders we don't find it that compelling. At it stands, we will probably wait it out and have a look and see what happens next.

Q: So, are you saying that you would rather stay the course over the next few years with HUL because the growth story is strong or are you saying that if Unilever PLC gives you a more tempting price then you will consider it, Rs 600 is not good enough?

A: At this point in time, Rs 600 doesn’t look good enough but we have some time to look through things and these things are all dynamic. It also depends on where the market is as a sector. It also depends on what happens closer to decision date. So, we will wait and see what happens. But, at this point in time Rs 600 is not quite that appealing.


Q: Switching to IT on which you have been a believer for many years and this stock would have tested your patience – Infosys over the last year and a half. After Q3 it looked like Infosys could be turning around and then came that big 20 percent fall on results day. Are you rethinking your position in Infosys?

A: We know that there needs to be some changes in the way the company is organized and some of these steps have been put in place. With a company the size of Infosys and a company that has the success that Infosys has over the last decade and the expectations that come with it, it will be some time before the ship really turns around. We expect effectively a couple of years before it begins to knock out the same steady type of numbers that it used to before.

Having this relatively disappointing quarter doesn’t change that hypothesis or the view that we have. The share price fall has been quite dramatic and we think that has been overblown. We did think the opportunity to top up our positions in Infosys during that point of weakness but the underlying premise of why we hold Infosys, continues to be the same. It has strong cash flows, it is a very good brand, with a very strong track record of execution. It needs some tweaking in some of the areas but it is a very good company at not an expensive price.

Q: The other one which might have caused a few sleepless nights for you is Hero MotoCorp because they seem to be steadily loosing market share from Honda Motors. Are you reconsidering that investment or do you think they will come out of this tough phase?

A: The transition when they initially split with Honda had gone better than expected atleast in the first three-four quarters and the momentum continues to grow even after the split. In India, the two-wheeler market every three-four years goes through a cyclical contraction or pause. We are possibly in that phase, so the market share loss during this period of cyclical weakness as well as an introduction to a strong new competitor in the market is not totally unexpected. We have been topping up the Hero MotoCorp stock at this price. Valuations are not demand. So, we continue to have a very favourable mid-term view on the stock itself.

Q: Generally you are confident about the consumption theme because over the last few months you would have noted that a lot of people have started questioning it given the sluggishness which has crept into autos, in some parts of the FMCG space. You think it is just a temporary blip?

A: Will we see a strong recovery over the next two-three quarters? Well, that is difficult to say, I don't think that would happen, but we don’t have a two-three quarter view, we have a five-eight years view. From that perspective, the consumption story remains very firmly in place.

Q: So, I see that your portfolio as long-term investors does not change too much from three-six months perspective. But any notable stocks that you can speak of which you may have added in the last three-six months? I can see Nerolac in your portfolio right now but any recent additions or top ups?

A: The recent additions that have given us a chance to top-up has been Infosys and HUL. Those were dramatic falls in share prices and they gave us a good chance to pick some of those stocks relatively cheap compared to what the market was valuing it at. The fundamentals for those stocks remain unchanged.

Q: What has the fund flow situation been like? Have you seen redemptions of late because generally a lot of people seem to be a little less enthusiastic about emerging markets this year? Or have you seen any fresh inflows coming into your products?

A: In our global emerging market space, we have seen some redemption and we have seen some inflows as well. It has been a very choppy four months to date and as a result of this, the global flows have been pretty choppy as well. We haven't seen dramatic contractions of 10-15 percent but on a month-to-month basis, we have been seeing some movement but assets under management for the emerging markets product has been pretty stable.

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