See long-term value in certain Indian sectors: Philip Poole

Though India is wading through problems, confidence of investors seems to be returning to the domestic shore. Philip Poole of HSBC sees long-term value in certain sectors in India. He thinks that the entry points at this stage are actually quite interesting in a medium to long-term view.

However, there are still uncertainties overhang that needs to be addressed by the government speedy reformative measures.
"Certainly, India is suffering from the risk-off more broadly from the market but it is also suffering from its own problems. We have clearly seen policy issues, lack of direction in a sense on some key issues," he says in an interview to CNBC-TV18. Here is an edited transcript of his comments. Also watch the accompanying videos. Q: Post the EU summit, there has been lot of optimism and expectations from the markets on some kind of accommodative policy? Is the market justified on the outcome post the EU summit or do you think it is an overreaction? How do you read the impact of these announcements?
A: Certainly I think it is a step forward. There is no doubt about that. But one of the problems with the announcement of the euro100 billion bailout for Spain was that it didn’t provide the circularity risk between the banks and the sovereign and what has been indicated certainly at this stage. Although we don’t have the details, if now the money will be directed directly into capitalising the banks without increasing the debt burden of the associate sovereigns.
So, we think that is an important step forward but I want to stress really that this overhang of the eurozone problem, it is a 10 year plus problem. It is an important step forward. The market reaction is warranted but this is a long-term process is the way that I would think about it. Q: We already had sizeable rallies though across most markets, tactically what would your approach be in terms of trading for an upside or a correction now?
A: The reality is that these markets are going to remain pretty volatile. They are going to remain pretty highly correlated in this risk-on risk-off type of environment but we do see value in corporate assets, corporate bonds globally and value inequities. We think that core government bonds, treasuries, guild look expensive.
We definitely are in favour of building positions over time in those corporate assets where we see value but it is going to continue to be in my view a risk-on risk-off environment. We are not back, at least I don’t think so into a bullish environment, this will run for a while. Q: There has been a lot of talk, as well, about the kind of data that has been coming out from the US and the fact that that could be the next big liquidity move. Is some kind of QE3 from the Fed likely?
A: The data in the US certainly has been weaker than expected, we saw a change in trend really from about February onwards. The data has been surprisingly negative and labour market data in particular has been weak. So, the non-farm payrolls number that is coming next week is very important.
I think we need to watch that very carefully and on the back of how those labour markets play out. That is really going to determine whether we see QE. There is a good chance that we get some additional stimulus beyond simply twisting its balance sheets before the end of the year. Q: If we do not get the desired push from the ECB, how do you think the market will react? How heightened is the risk-off in the event of no action coming in from policy makers?
A: We have seen a big risk rally on the back of the EU summit. So, you can argue that today it is no longer being risk-off but of course the Q2 has been characterised mostly by risk-off and markets have traded down very different performance relative to what we saw in Q1. Looking at across Q3, we think the valuations are attractive at this point and need to see data.
We have seen more data from EU Summit, we don’t have the data as we speak now and that has been a problem in the past. But certainly it seems that the EU leaders are now getting their act together in a sense addressing some of the key issues that the market is worried about. We do actually see a more positive view if you like of what can happen in Q3 as a result. Q: How would you summarise things for India then? Are you getting a little more hopeful on India in the midst of all this global risk-on?
A: Certainly, India is suffering from the risk-off more broadly from the market. It is also suffering from its own problems and we have seen clearly policy issues, lack of direction in a sense on some key issues. I think we need to see some of those issues resolved but there is not a doubt also that India is a market that certainly in rupee terms is underperformed.
So, again to go back to the point, we see long-term value in certain sectors in India, in discretionary consumers for example. We think the entry points at this stage are actually quite interesting if you can take the medium to long-term view.