EMs a risk-on-trade play; Infy & TCS are well run: Aberdeen

India, he said, has an investment opportunity for the long-term.

He is bullish on Infosys and TCS, two home-grown software giants which have invested wisely in quality talent. “We like the cash they are generating, current leadership.”

He has a call rating on HDFC Bank. He remains invested in ICICI Bank and Kotak Mahindra Bank. “They are focussed on the niche they service,” he said.

His NBFC portfolio is also strong. India offers a lot opportunity, and it would be negligent not to have exposure in the sector, he said.

He spoke about Grasim and the telecom sector.

Insurance space is a competitive space over the next five-ten years.

In the consumption space, he holds Emami.Below is the verbatim transcript of Adrian Lim's interview with Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Anuj: It has been a big bull market this year for emerging markets, for all equity markets actually. Do you see that continuing or do you see there is risk to that if the Fed indeed hikes rate maybe this week?A: That is difficult to call especially on the Fed moves. I think the consensus view is that the Fed will probably do nothing for this round but they might give a bit more guidance on what they will do in the next round. The emerging markets rally this year has been strong and has been a nice relief but it is also a risk on trade that is dependent on the relative attractions of the emerging market space.India in its own unique way is also attracting decent amount of attention given that it is also in a relatively strong spot. Balance sheets across households, individuals and corporates in the country is well placed. However, ultimately this rally needs a sustainable recovery and that is something that we don't have data points to point us to yet. So I would say this rally is welcome.There are some signs to show some fundamental support but we are not seeing a full on, multiple, sustainable rally across various sectors, across various countries quite yet. So I would advice some caution if you have got a short view.Latha: Do the current valuations worry you, would you therefore want to take profit on any of your investments? On the other hand, do you think that given the liquidity rush in the world, these are buy opportunities? Incrementally are you a seller or a buyer in India?A: The valuations are quite tricky because if you have a three year, five year view, which we do have, we think these levels are attractive based on the fact that a recovery will come in within that timeframe and the earnings base will increase from there and expand from there. If you have a shorter term view, something in week's measure, in weeks or days, I think it is more challenging to make that call.If the liquidity situation, like you say, is the key driver for your decision making which means this is a short-term call then you would put valuations aside and think about more technical issues. That is something we don’t do at all, so, I am not well placed to advice that. What we do know is that the country India as an investment opportunity remains -- its investment case for the long-term is intact and it is very important to selectively pickup exposure in the equity markets with this volatility that we have been seeing over the last few quarters.However, short-term call on valuations, short-term call on liquidity, that is very difficult to call. I am not quite so brave.Sonia: Let us talk about some sectors now. The Infosys stock is now down 20 percent from its highs this year. As a long-term investor and watcher of Infosys, is this a mouth-watering opportunity or do you think the story has played out for now because of the concerns in the sector?A: At this level of valuations, I am not making a buy or sell call on this one but in terms of exposure, we like the exposure, we have Infosys at these valuation levels. It is one of our top five positions within our Indian country fund.You have a stock that is quite volatile over two-three issues, the first one would be the recovery in demand in developed countries and developed markets. This has formed the bread and butter of its business and TCS' business over the last decade or so and the fortunes of the developed markets are very strongly entwined with the fortunes of these two companies. So that is a call there. When you see any kind of major response to a recovery or the strength of developed markets, you cannot avoid some kind of impact on share price of these two stocks.The second call is on the relative merits of the rupee against the US dollar where it pulls a lot of its revenue from -- and that is something that is quite uncertain as well. The longer-term prognosis is quite attractive though. You do have two companies, Infosys and Tata Consultancy that have invested and are continuing to invest in the quality of its people in the recruitment mixture that they gets the best possible talent on their bench and increase trading to make sure that they are increasingly adding value to their client base and portfolio.So we like what they are doing, we like their numbers, we like the cash they are generating and we like the current team of leadership that heads up these two companies. That is why we have maintained this exposure for.Anuj: Your positive view on Indian financials specially the private financials like HDFC is well known. Do you think that space remains the leadership space and are you tempted to look at the state-owned banks as well in India now?A: We have always been looking at that banking sector. The interesting thing about India is that there is so much choice and although we have got a handful of financial institutions, that is over 50-60 names that you can easily look at, I think for India, we do have a call position in HDFC, HDFC Bank, we have been investors about a couple of years back in Kotak Mahindra Bank and we have exposure in ICICI Bank as well. These are all well-run institutions with professional management teams, which are very focused on each of the niche that they service.I think they will continue to lead in a recovery, the state-owned banks offer slightly different opportunity as well. Although we don’t hold any exposure to the state-owned banks for now, people might extrapolate and say we are bearish on state-owned banks but we don’t hold a lot of things, which are interesting opportunities to given the choice we do have to be stay focused and although we look at the state-owned banks in sometime, there are other challenges that we think will give us the risk return profile that we think is much better in the private-owned bank sector. So that is what we are sticking with for now._PAGEBREAK_Latha: From the last numbers we got in the India Opportunities Fund you have 19.5 percent stake in financials. Will you look at increasing it and will you look at going beyond the private sector banks to non-bank finance companies which have done very well or even to the small banks which are also private banks names like Ujjivan Financial Services, Equitas Holdings. You have normally preferred the Nifty companies. Will you expand your financial portfolio?

A: Yes, its 19 percent. Actually over the last five-ten years you would have seen that the banking has always been a big position within the fund. It can be as low as 18, can be as high as 23-24 percent but it is always formed of the core leg on which we stand our Indian fund on. The demographics are interesting, the quality of professional teams is good, is very high, the way they manage capital is good and the demographic story for demand and increased services are very attractive as well.

You are right, in that we have quite a bit in the private sector banks but we also have very big position in non banking financial companies (NBFCs), HDFC is classified as NBFC actually, so that is a call of our holding as well. We do have, in the past, looked at small and mid tier names as well. We use to hold ING Vysya Bank but given that Kotak Mahindra Bank has taken over that bank so that has been folded into our Kotak Mahindra exposure as well. So we will continue to look at the small and medium size institutions and we will continue to look at the NBFCs and state owned banks. India offers a lot of choice and it would be negligent not to look at the whole opportunity set.

Sonia: What is your Nifty view over the next six months? There are a lot of numbers flying around. We were speaking with JP Morgan and they indicated that they have a 10,000 target on the Nifty by the end of this year which means 15 percent upside from now. Do you think that is a reasonable assumption and where do you see the Nifty over the next six months?

A: I would not be able to add much more sophistication to that. I heard your earlier guest; he talked about 10,000 targets as well. We do not look at the market that way. We try and get more granular. We look at specific stocks and if specific stocks deliver and earnings per share grow on the average of low teens. We would be pretty happy with that portfolio and if the ratings are maintained at the same levels that we get now, it would be a decent performance for the calendar year or the financial year. So that would broadly be our expectations for our own group of companies.

The Nifty, not so well placed to comment on.

Anuj: We were talking to your colleague post Grasim Industries' deal and Grasim is one of your significant holdings. Any fresh developments on that have you had any kind of chat with the management and your view on that stock now since you have reasonable position in that stock?    

A: We like Grasim for quite a few things. We like the fact that you get to access the cement business at a lower valuation that you would, if you have exposure in UltraTech Cement. This deal is quite interesting. It is a difficult deal to please all stakeholders in, so it's a tricky one.

However, what we have been doing is we have been talking to various management teams and we have been looking at different assets that will be significant within the enlarge group. We find bits and pieces of good assets, good businesses with very good professional themes. Ultimately we need to look at the details of the deal. At this point in time although we like the principle of some of the things, it's a complicated deal and we are still doing our work and we need to assess this once we have done our work. We still have a bit of a time, so we won't come to a conclusion yet.Latha: Should we assume that you are pressuring them to change or convincing them to change some of the contours of the deal?A: They know where we stand on as minority investors and that is something that we would keep to the management.Latha: I wanted to ask you about the IPO, about the public issue that is currently open, the ICICI Prudential Insurance IPO, as well your view on the HDFC Max Insurance, does that sector attract you?A: The sector is very attractive. I would not comment on the specific deals but the sector is very attractive especially if you have a long view. You are in a place where the levels of penetration remain very low and you have in both these entities whether it is HDFC Max or it is ICICI Prudential, you have market leaders. They are slightly different in their own ways, slightly different cliental, different distribution channels, we like the management team in both these entities though.If we project our expectations over the next 5-10 years, we expect these two entities to continue to be significant players within the life insurance market that they serve in India. It is a very competitive space, they are currently leaders, and we hope they will be able to maintain their positions going forward.Sonia: I wanted your thoughts also on the consumption space because that is where a lot of the money has been made over the last six months and in that you have added Emami in your portfolio. What is your view on some of these smaller FMCG companies?A: Over the last 15-20 years, within our funds we have got as minority shareholders we have got very good experience with our FMCG holdings whether that is the multinationals or the domestic players. Although we have seen a competitive landscape, we have seen managers and professional teams that have been very diligent in the way they apply their strategies and their tactics in different markets.We have also been able to see them professionalise and increase the level of quality of the work that they do whether that is in advertising and promotion, whether that is in pricing promotions, whether that is controlling cost. We have seen a very good quality of business management in the FMCG space and Emami is one of the latest that we have added into that space and we hope that it will continue to be one of the leading domestic players and will be able to expand its reach and its depth across India.Anuj: For India one of the sectors which has destroyed a bit of wealth is telecom over the last many years now. With a new aggressive player now getting in, do you see more de-rating for the sector and the large stocks in the telecom space?A: It is a very exciting place to be commenting on now. With Reliance Jio coming into the frame, there is an increased intensity in competition. It won’t be just competition on a pricing level, as well it would also be the quality of the service that is provided. Within that we have exposure to Bharti Airtel, in Bharti Infratel as well and we think that the landscape although it will get more demanding with the sophisticated consumers that will expect more, we expect the market to tilt in favour of the incumbents.We expect the second, third tier players to continue to find it difficult. So, we think that it is a competitive landscape that will be good for the consumer, good for the larger players. Where it will end, it is difficult to call but it is an exciting space that we continue to have some exposure to. Not a large position but some exposure to.