India is looking like an island of prosperity among emerging markets, says Nandita Parker, general partner at Karma Capital Management LLC. The situation could have been better for India, but atleast now the country can build its infrastructure at a lower cost compared to China, she told CNBC-TV18. The world, however, will have to adjust to slower growth scenario.
On the brighter side, with the US Federal Reserve liftoff getting delayed, the market, especially emerging markets, are getting enough time to adjust to the first rate hike, whenever that might happen.
Coming back to India, Parker is glad to see the Reserve Bank governor Raghuram Rajan finally bite the bullet and give the market some reason to cheer. She is increasing her exposure to India — deploying cash into Indian markets — and says investors in the US too are positive on the country.
Sectorally, she says public sector banks are looking attractive at current levels and the shifting of loans from discoms to states is a move in the right direction as this will lower banks' NPAs. She advises investors to stay away from commodity stocks.
She also feels that China concerns seem to have been overdone for Tata Motors. Also, she says Motherson Sumi is now looking attractive post the sharp correction.Below is the verbatim transcript of Nandita Parker's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Traders are in a happy spot today with the handover from US being very positive and Asian markets cheered, China not around to play spoilt sport, so green all over at this point in time. However, you tell us, this is bad news being read as good news from the US markets, the jobs data wasn’t too good, do you think the market celebration could be short-lived that the world will have to perhaps get used to lower growth numbers and we may see that reflected in the equity indices?A: That is a lot of questions. From a US standpoint, the Fed lift off has been delayed. I think the market has had time to adjust to whenever the first rate hike actually takes place. If you think back at how long it took for quantitative easing (QE) to end and by the time the end started the markets had adjusted to that. Similarly, I feel that by the time the Fed does hike interest rates for the first time, the markets have had sufficient time to take that into the stride especially emerging markets (EMs). They have been reeling every time there has been talk of a rate increase.So, I think that yes we are looking at a slower global growth scenario. It is a very uneven scenario and in fact India is looking like an island of prosperity where EMs are concerned. So, all-in-all it is a positive environment for India. It is not as great as it could be but I am looking at the bright side and saying now India has a chance to build its infrastructure at a much a lower cost than what China was facing. So, it is actually looking like a really good scenario from an India market standpoint.Sonia: Have you increased your allocation into the Indian market at this 8,000 level and what is the risk reward looking like now in terms of returns for the market?A: Yes, as I had mentioned to you a couple of weeks ago, we had cash levels and we have been deploying them. We are very glad to see Governor Rajan finally biting the bullet and giving the market something to cheer. I think that was long overdue. So, we have been increasing our exposure and our investors in the US as well are positive on India.Latha: Which segment of India you like? Let me start with some reforms being announced for the state owned banks. One of them is likely to be recast in a such a way that the government shareholding comes down like it has done in Axis Bank, it is indirect shareholding. As well some of the state electricity board (SEB) loans are going to be recast. It is beleaguered sector so will you look at public sector banks?A: I think it is time to take a look. I think that it is a very good act by the government to shift the loans from the SEBs to the states with the idea that they will have better control in terms of allocation and getting repayment and also to not burden the banks anymore with further non-performing loans (NPLs). So, I think it is a good time and what I am saying therefore is that it is a broader based positive for the economy.My interactions with various ministers and people in the ministry are showing that there is a lot of work being done on the ground. It is not what you might call big bang reforms but there is a work through that is happening which is setting the stage for a broader based market rally and a more positive environment than what we have seen in the past nine months.Sonia: How do you approach a stock like Tata Motors, it has been battered because of the issues in China but now there seems to be a valuation argument that is playing out? A: I think that there were a number of issues with Tata Motors. There was China and if we can see, the similar issues were playing out in the luxury cars, in BMW, in Daimler and so on. So, the slow growth of China had played into the segment. Last week the Chinese government has announced stimulus for the car industry but this stimulus is actually targeted towards the smaller cars, less than 1600cc but it impacts 13 million cars in China. So, there is a growing feeling that the Chinese are addressing growth and that they are going to be providing more stimulus and maybe that the concerns over the Chinese economy are overblown, that they will be able to slowdown and manage their slowdown a little better. Latha: How would you play the auto sector in India in terms of the auto ancillaries? We saw a fairly well run company like Motherson Sumi get it on the chin after the Volkswagen news, is this for a long investor time to buy the distress? A: I would say that. In the past I have found that instances like this when a good quality company has been battered the way Motherson has been, it has been a good time to buy. This time period to buy, it could extend to three or four months.If you look back at Maruti Suzuki, this is what happened with Maruti a couple of years ago and anyone who had got Maruti in that downdraft when their controversy with Gujarat plant was taking place, would have generated a significant amount of returns. So, what I would say is that it is a high quality stock, yes, there have been some concerns but not that it is going to blow over. There is fresh diversification within Motherson in terms of its client base that over a period of time the story will play out.
Sonia: How are you approaching the market in terms of sectors now? You spoke about financials and autos but for the next say 6-12 months what would your top preferred sectors be and on the flip side what are the sectors that you would stay away from? A: I am not a big fan of commodities even now. So, when you talk about value picking, that is not where I am headed. I tend to be very bottom-up in my approach. So, even when I talk about financials, I would rather go for the well run financials or the ones that have a higher delta in terms of the upside. However, other than that we are positive on consumer discretionary especially in the media sector. We think that there is a lot of room there. To give you a data point, even in this slow growth environment that India has had in the past few months, TV, broadcast, advertising has been growing at 13 percent. Something like a Zee Entertainment since their advertising growth has been almost double that so even in this environment there have been pockets of growth. So, as growth accelerates there will be more to come. So, I think that from a rate cut perspective, we are looking at white goods, we are looking at air conditioners, building products – those are some of the areas where I would buy the correction. Latha: You wouldn’t look at non banking financial companies (NBFCs)? You spoke about public sector banks but basically how would you play the financial sector?A: I like the housing finance companies but I am extremely selective again. Within the housing finance companies the higher quality one.Sonia: I wanted ask about the issue that took place on Thursday which was with regards to HCL Technologies. How do you approach some of these names, there are some client specific issues that HCL Tech has referred to and the stock saw a big fall on Thursday but this stock has still been one of the big gainers this year. What do you do with a name like this?A: I have not owned it offlate. We own Infosys in this space. Latha: What about the infrastructure space, you began by saying that India is in a sweeter spot in terms of building its infrastructure space, how do you play that theme? A: There is Larsen and Toubro (L&T), the mother of them all and eventually when the orders do come in, which they will, it is a matter of time, this is one of those big beneficiaries. However, even in the small and midcaps, there are plenty of companies that have higher governance standards. At the end of the day to me the most important thing is governance within the sector because the valuations can be marginally better or worse but what will give you wealth generation ability is going to be the companies that have done well even in a downturn, that have been fair to their shareholders, not taken on too much debt and then grow from there. Sonia: One final question in terms of how you would approach the pharmaceutical stocks now because names like Lupin, Dr. Reddys have given you big returns this year already. What are the top stocks that you own in that space and do you expect to see outperformance? A: I think a lot of the work has been done there in terms of returns for the year. I think as the market shift towards the stocks that we discussed, there might be some kind of a correction there. So, I am not overly positive given these valuations. I think in portfolios they can be core holdings but I wouldn’t say there is something compelling today to go and put new money in. Latha: There is one theme that has not gotten the attention from investors, the payment banks. Those licences were given out and they are all guys with deep pockets, some of them with extensive networks. How do you play that theme? A: I am going to wait.
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