Emerging markets continue to be optimistic: Aberdeen

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In the last few days Indian markets have seen a healthy run-up thanks to strong FII (foreign institutional investor) inflows. While that has been a reason to cheer, it has also been causing some amount of worry because domestic support appears to be merely a trickle.

But Adrian Lim, Investment Manager of Asian Equities, Aberdeen Asset Management believes that the prospects of emerging markets continue to remain optimistic. Asian companies have reported strong earnings and have seen fund inflows on a net basis, he said in an interview to CNBC-TV18.

But markets may remain volatile in the near term, he added.

About India, in particular, Lim said that the markets had a mix of over-valued stocks and bargain bets. Currently, Lim remains bullish on Indian IT stocks but has become selective on the financial space. "We have big positions in HDFC , HDFC Bank and ICICI Bank ," he said.

Here is the verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee. Also watch the accompanying video.

Q: How are you feeling these days, apprehensive about what is brewing globally or confident?

A: I think we are quite sanguine about what's been happening. We look at today's start, first two hours, we think it's a strong start. Now, we think that maybe it's a little bit more muted. But the Asian markets have been relatively defensive capital market region for the year to date. So, I think there is a tendency to read too much into the short-term volatility.

As we stated earlier this is going to be a difficult year, most of the markets are going to go sideways. Even though when you look at the economic fundamentals, quite a lot of Asian markets and quite a lot of Asian companies continue to post strong fundamentals; a lot of them have cleaned their house, have solidified their balance sheets and have been able to access capital where they needed. They are positioned for good growth in the next three-five years. But over the short-term, yes, you will have periods of volatility like this one.

Q: Tactically, are you a bit cautious or do you think this is just a mild 5-7% kind of a volatility range and it will pass?

A: No, we are fairly relaxed. I mean there are some areas of caution. But since we do not do strategic allocation from a top-down perspective, what we do is we pay attention to individual stocks. Even in sectors, which are difficult, where you have inflationary pressures, you will be able to find stocks that will stand those pressures quite well by having good well remunerated management teams that are professionals, by having balance sheets that are relatively cashed up and buffered against financial risk. So, I think the markets we will watch we have some concern, but our direct holdings in the markets, we are relaxed about what's happening.

Q: What's been your experience with capital flows? Have you been seeing a lot of inflows of capital from your investors over the last three-four months? As a long-only kind of a fund, what's been your experience?

A: Unfortunately, I cannot give you a clear trend there. We have had mixed flows generally net up from what we were 12 months back. But they there have been clients that been taking money out, some clients putting money in. On a net basis, we are up, we been continuing to build assets under management (AUM) in the region. Most of that is coming for people who are interested in a global emerging market space. So, they look at Asia as an important part of the emerging market strategy.

But we also have clients that look at Asia for Asia per se, looking at Asia ex-Japan story separately. So, two different types of client bases, but both of them remain relatively comfortable with their position in Asia and continue to be very supportive of the Asian markets.

Q: What about India specifically, do you think it's expensive or you continue to remain invested?

A: I think India is mixed basket; there are some bits that are expensive and there are some bits that are bargains of value. I think you do need to look at specific sectors and specific companies.

From a sectoral perspective, we are comfortable with the software industry, there continues to remain a strong position for us for Indian exposure. We are a bit more selective in the banking and financial sector, there are some good banks, some good financial institutions there.

Even at this point in time with big multiples as they are, we will still steadily accumulate shares, but it depends on what timeframe you have. Given our style there will be periods that if we buy in now we might expect a contraction in the next one-two months, but we would still buy because we think that the long-term prognosis is still pretty attractive. So, those will be two sectors, two areas that we think the long-term fundamentals are attractive and we do not think that valuations are prohibitive yet.