Infosys' nos let us down yet remain invested: Aberdeen AMC

In an interview to CNBC-TV18, Adrian Lim, investment manager - Asian Equities, Aberdeen Asset Management says that while the fourth quarter earnings numbers were disappointing they are still positive on the stock. On the fundamentals, he doesn’t think anything has changed though these are still very strong companies.

“We especially like Infosys and Tata Consultancy Services (TCS), they offer engineering services that are very competitive globally and as long as it produced the levels of cash flow that we see, we think these are very good businesses to invest in,” says Lim. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: I know that you have been overweight for a long time in Indian IT stocks. On Infosys particularly, were you disappointed with what you heard day before yesterday from the company? Have you changed your investment policy on IT as a sector and Infosys specifically after that?
A: The results were disappointing. We don’t pay so much attention to quarter-on-quarter (QoQ) numbers as such but possibly moderate tune of the guidance shows that unlike the expectations from the North American market. The recovery in North America is still a patchy one, we don’t see a sustained level of strength in depth in the recovery and that has impacted the IT services counters that we hold.
On the fundamentals, nothing has changed though these are still very strong companies. We especially like Infosys and Tata Consultancy Services (TCS), they offer engineering services that are very competitive globally and as long as it produced the levels of cash flow that we see, we think these are very good businesses to invest in. Q: It is 10% on your India Opportunity Fund, the weightage that you have for Infosys and it is not just this quarter, last year as well was pretty gloomy in terms of revenue growth for Infosys versus the others. Have you changed the positioning any in terms of whether you prefer TCS over Infosys now or is Infosys still your top weight?
A: We have got a substantial amount in both Infosys and TCS. In terms of relative calls, from a market volatility perspective, sometimes one will have a lot more weight than the other but we like both these companies and both of these are core positions in our fund. If either of them does well, the fund does well and if either of them doesn’t do well, we will suffer some detraction from relative performance. Q: You have also got some exposure to financial names like HDFC and ICICI Bank. Have you chosen to cut exposure or are you still long on some of these names? What is it that you expect to here both from the macroeconomic policy and from these banks in terms of performance?
A: On both HDFC and ICICI Bank, we have been steadily accumulating over the last six months or so. We accumulated when these banks will relatively weak and we have some good performance numbers from these holdings in the March quarter. So sentiment comes and goes.
ICICI Bank has got a strong capital base and both these banks have got quite a great degree of depth in their management teams so we think they will use their capital quite wisely across the credit cycle. From what I have seen it can be an increasingly moderate level of credit growth but these two banks continue to be well positioned for a longer medium-term perspective. Q: We saw quite a bit of money coming into India since the start of January and February particularly and even a bit in March, did you see a lot of money interest or fresh money coming into your fund, which are essentially long only kind of products or did most of that money come in through shorter-term plays like ETFs etc?
A: We know that we have had a steady amount of flow. I wouldn’t say that we have more interest in the March quarter than for example the quarter before and a quarter before that but I wouldn’t call it exceptional. You are right the people that we service tend not so much to focus on short-term flows in and out of the country but I cannot say for sure. I am sure that we do not during times of great inflows like this match up to what the ETFs do but it wasn’t bad from our point of view.