JPMorgan sees new high for mkts; bets on engg, IT

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Irrespective of how the global markets have been performing over the past fortnight, India has been witnessing a major upswing. In an interview with CNBC-TV18, Adrian Mowat of JPMorgan, who has been overweight on the country for the last nine months says the growth dynamics here are far superior to other economies. He feels the Indian markets will continue to move higher and possibly touch new highs. "We see an upward revision of India's macro numbers which would lead to an earnings revision."

Apart from India, Mowat is positive on Turkey, Korea, Taiwan, Thailand and Philippines and likes the financial, engineering, construction and IT spaces.

Below is a verbatim transcript. Also watch the accompanying video.

Q: It has taken quite a long while to break that 5,500 level, what is the sense you are getting? We have had a bunch of experts telling us that markets are richly valued but the momentum goes on. What would you do?

A: There are quite a number of conflicting factors at work in global capital markets at this point in time. Perhaps the positives to focus on, is that there is a very powerful rally going on in global credit markets. Particularly if you look at emerging market bonds, both sovereign and corporate.

The access to credit for economies such as India which runs current account deficits, when it's growing rapidly is very good at this point in time. Investors are making a mistake when they focus too much on valuations and are really underestimating the growth dynamics of India. Remember those growth dynamics against the backdrop of a very slow growth world. Of a world in which it is difficult to find growth assets that people believe in.

My suspicion is that India will continue to perform well. We have an overweight on this market for nine months now. It has tended to be a non-consensus view, with a lot of push back because of the valuations, but its working. And it's working because the growth dynamics of India are superior than most economies that we look at globally.

Q: Should we understand that back home you are revising higher the expected earnings growth of Indian companies? Would you give us some numbers if you have revised them or are you revising just the macro growth numbers of the economy? If you are buying what are you buying now?

A: I believe that that the macro numbers will be revised higher and ultimately that would seep through into a higher earnings revision. We are in a relative game here and if you look at cash, you are getting a zero return.

If you look at return on investment grade bonds in US, its just 4.3%. The return on 10-year government bond in US is 2.67%. If you then look at an economy like India, you are growing a nominal gross domestic product (GDP) 13-14% this year if you add in the deflator. That is an attractive growth rate particularly in an environment where emerging markets continue to attract capital and that ultimately supports the currency.

My job is not to revise earnings numbers but it is to have a macro view and if our macro view is correct then I imagine that would lead to positive earnings revisions.

Q: On a relative basis, if you think that India's macros have a chance of getting upped, what about the equity markets? Do you see the Nifty and the Sensex going on and hitting their all time highs sometime this year?

A: I think that is quite possible, whether it's this year or in the next 6-12 months. I expect these markets to continue to move higher.

Q: As a fund manager if someone has cash, as an equity strategist would you advise them to put money in India? In the emerging markets, how would you stack India versus its peers?

A: We have an overweight with India. We are also overweight Turkey. We like the technology markets of Korea and Taiwan and we also like some of the smaller markets such as Thailand and the Philippines. India is our key largecap market at this point in time.

Q: And within these spaces which are the sectors? We have seen banks leading the index to these new highs. What are your sector favourites or even stock favourites?

A: We have an overweight in financials. We continue to like engineering and construction stocks on the view that the order backlog will be building. The other thing to highlight and lot of people are missing in the macro economic numbers, if you look at business equipment in US.

It is currently growing at 15% year-on-year (YoY). I think this is a good backdrop for the technology companies in Asia whether they are software or hardware companies. We like the Indian IT companies, which relative to their historic valuations are offering a nice combination of growth and reasonable value.