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Mar 28, 2013, 09.57 AM IST | Source: CNBC-TV18

Neutral on India; see little follow-through on reform: HSBC

Herald Van Der Linde, head of equity strategy (Asia-Pacific) at HSBC is neutral on India as he sees very little follow-through coming after the slew of reform measures announced.

Herald Van Der Linde, head of equity strategy (Asia-Pacific) at HSBC is neutral on India as he sees very little follow-through coming after the slew of reform measures announced. "The equity markets have reacted very positively to Indian reforms, but in overall Foreign Direct Investment (FDI), there are no actual investments coming to India," he told CNBC-TV18 in an interview.

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Below is an edited transcript of the interview.

Q: You have been looking at the Asian market underperformance from the start of the year. How are you guys calling it from here, especially given the European context and the kind of nervousness that is emerging from Cyprus and developments there?

A: Since the beginning of the year, we have been a little bit more cautious. Previously, people always said "sell in May and go away"; but with the first couple of months of the year showing the best performance and we said this year it is going to be sell in January, maybe comeback in May. We continue to have that particular view. That to a certain extent will also be driven by what happens in Europe.

If you look at the existing reporting season in Asia, there is a little bit of a drag as well. Some of the earnings, which came through are a little bit disappointing. What we now need is to have a further improvement in earnings and fundamentals or valuations to come down to levels whereby it is attractive and say listen this is the time for a further leg upwards.

Q: There are big concerns emerging out of China as well. Is it beginning to top the list in terms of problems for global equity markets and how do you see that pan out?

A: For global equity markets, the developments in Europe--that is Italy and Cyprus--are key concerns. In Asia, the situation with Japan and change of the monetary policy there is of course a big scene. What comes really out China at the moment is that the earnings are okayish. For some other countries, we have seen a little bit more disappointments and we still have a lot of companies to report. So it is a little bit early to make any particular judgement.

However, across the region, if we look at earnings forecast, analysts were hoping for about 10 percent earnings last year 2012 only a couple of months ago and it seems only coming in longer single digits. There have really been a little bit of a disappointment in earnings for 2012 and it means that the base with which we started 2013 is longer as well. The markets are starting to digest that a little bit.

Q: You had upgraded India to neutral. From the start of the year till now it has been one of the worst performers in Asia and perhaps amongst emerging markets as well. What is the call there? Are you comfortable with how much valuations have corrected or do you think earnings could see some more deceleration?

A: I am not completely comfortable with India. We are neutral on it at the moment. We have been quite cautious on India. We moved to the neutral because some of these reforms were coming through, but we do not really see a follow-through. The equity markets have reacted very positively to Indian reforms, but the overall Foreign Direct Investment (FDI) markets there are no actual investments coming in India.

The reason that I am seeing is: it is not really showing any particular kind of increase and then you are basically going through a pre-election year as well, a couple of key elections coming later on. So I am not quite sure how it is going to go for India. Against that background, you have earnings growth showing a bit of downside. Valuations are not expensive as against what it was in the past, but on regional basis they do not look cheap either. So I am happy to be neutral at the moment.

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