US rally eco data-led; euro zone remains a concern: EM Cap

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US rally eco data-led; euro zone remains a concern: EM Cap

Seth Freeman of EM Capital Management spoke to CNBC-TV18 about how he reads the rally at global markets.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Seth Freeman of EM Capital Management spoke to CNBC-TV18 about how he reads the rally at global markets. He says that US market rally is being led purely by news flow from positive economic data. As for the European crisis, he expects some clarity moving towards the second quarter of the calendar year. "The ongoing problems in Spain, Greece and Italy are of concern," he says. 

Though EM Cap is out of Indian markets currently, Freeman is confident of the long-term story in India. He is especially bullish on the IT sector on the back of demand growth expectation.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: You just told us that at the moment, you are out of Indian markets. Would you now wait for the markets to recede a bit? Are you expecting some kind of a receding in the markets or do you think this bull rally is going to surprise us all?

A: We are out of the markets because we don't like the market, we are repositioning our product line at the moment. So we view the market as not really necessarily a daily story. We really are focused on the long-term for India's growth.

Q: What would you attribute this rally in India? It has been one of the better performing markets, maybe the best in the past six weeks since mid-December. Are there internals which are likely to continue and bring more gains or is this largely a global liquidity story?

A: It's partly a story of returning liquidity, but recognition that India and some other emerging market countries were oversold. But one has got to look at it coupled with a fact that US interest rates and other developed country interest rates make emerging markets that much more attractive.

Q: How are you positioned on the rest of then world then particularly in terms of the developed markets because we have already seen NASDAQ at 11 year high? Would you think that there is more upside left in the US markets and Europe?

A: In terms of US, it is going to depend on continued profits and growth. We don't really see a significant increase in demand per se. We are seeing some increase in areas of heavy equipment, particularly now with interest rates lower it will be much easier to finance infrastructure. On the other hand, it also can make the paying in dollars more expensive.

Q: You indicated that you have exited out of India in order to reposition yourself with different products. Could you tell us the different products investors should look at, at current levels?

A: We have always been very strongly in favour of fundamental bottom up stock picking understanding the companies themselves and not focusing as much on macro economics. bThis is based on the fact that each company is different, has its strengths, its balance sheet, its strategy in the market and so forth.

However, a lot of investors feel hurt by stock picking. In terms of India and some other major emerging markets, what they are really looking for most part is, country exposure. They are willing to take a long view as oppose to suffering through the volatile ups and downs you might in short terms in these markets.

Q: You must have watched the third quarter numbers very closely. If you are looking at a bottom up approach, name some of the stocks especially in the midcap space which got badgered so badly that have impressed you with their performance.

A: We were one of the earlier foreign investors in Nilkamal Plastics . That company is a very good proxy not only because of its growing chain of stores here in India, but being in a pallets and transportation equipment business, it is somewhat a proxy for industrial growth shipping. It seems to be very well run.

We are very interested in India, in companies that are biased towards sustainability and environmental, social and governance factors. We think that that reduces a significant risk factor as Indian companies become globalized and they are under pressure to adopt sort of global standards in environmental sustainability. In terms of the long term institutional investors from developed countries will be looking at the companies that are best performing in terms of ESG performance.