Richard Titherington, CIO & Hd-EM Equity, JPMorgan AMC is overweight on the Indian market and sees it as one of his favourites among the emerging market (EM) pack. He sees no huge up or downside moves in the market for the next few weeks.
Sharing his views on the recent currency rout, he said that the Indian rupee is likely to perform better than other fragile economies. From a three-five years horizon, the rupee is undervalued, he told CNBC-TV18 in an interview. Meanwhile, he is bullish on export-oriented stocks and prefers IT to pharma sector. From the auto space, he is positive on two-wheeler stocks.
According to him, the worst is over for the Indian economy.
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Below is the edited transcript of Richard Titherington's interview with Anuj Singhal and Latha Venkatesh of CNBC-TV18.
Q: Do you think the big selling we saw in risk assets last week will continue?
A: Over the last week or two, investors have been very nervous and hence selling that you have seen, not just in equity markets, but in currency markets as well. We have probably seen in most cases the worst of that and I think that the Chinese New Year holiday across many Asian markets will be quite helpful in giving people literally a pause to digest the events of the last couple of weeks.
Q: Do you say that you do not expect this selling to be as prolonged as the one between May and August last year?
A: There is always a chance that market turbulence is prolonged, but if you look at what happened last year although we had a fairly long period of turbulence we did actually quite a strong recovery towards the end of that period. When you look across the emerging market world can things fall further from where they are today? Yes they can, but are they becoming increasingly attractively valued? Yes, I think they are.
Q: Are you buying Indian stocks now or will you wait for cheaper levels?
A: As you know I had been an optimist on Indian market for sometime. It has performed well and has held up pretty well during this selloff. I think that as the outlook for India continues to improve and as people start looking towards the election India will continue to do better than the average emerging market.
Q: There are some people who expect that the Nifty could go to levels of 5800-5700 considering that there have been FII outflows. Do you see that kind of fall in the follow-through of last week\\'s volatility?
A: I am not expecting the Indian market to move dramatically one way or the other over the next couple of weeks. You are more likely to see volatility around the currency than the equity market itself.
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Q: Rupee performed better than it did in 2013, certainly better than the fragile five with which it is compared. How do you see the rupee this year?
A: When you compare India to the other so called fragile five, India is considered by international investors to be in some senses ahead of the curb. India had its period of currency volatility last year. Central bank under the new governor has probably more credibility than most of the other fragile five economies. I continue to think that the Indian rupee will do better than the other fragile five currencies.
Q: The governor also raised rates unexpectedly two days back. Does that alter your perception of Indian companies or maybe your buy list?
A: It did not surprise me particularly because we are obviously in a period where rates are going up in the emerging world and the governor was taking proactive action which although painful in the short-term is a positive in the medium-term.
Q: What would be your top three markets in the emerging market space?
A: When I look across the emerging world, there are really two key themes, one is being overweight current account surplus countries and I would highlight China and Korea. Secondly, I am still overweight the Indian market. Thirdly, I would be looking for beneficiaries of currency weakness around the emerging markets, so exporters, companies with US dollar revenues, situations like that.
Q: Why is India in your buy list?
A: India has been through a period of disappointing economic performance. It has been through a period where the government has disappointed foreign investors and the outlook on both those fronts is likely to improve, certainly from a foreign investor's perspective. Obviously from a local perspective, the market is near all-time highs, but the weakness in the currency has added to the attraction on India. When you lookout on a three to five year view the currency is pretty undervalued.
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Q: You earlier spoke of dollar earning companies as something you are in favour of. So should we understand that you are largely packing your portfolio with IT and pharma stocks?
A: Certainly we have had a big exposure to IT companies. I would generally prefer the IT sector to the pharma sector and so that is a significant part of our Indian exposure.
Q: What are your favourites in the IT space? Post this round of results some people are expecting a narrowing of the valuation gap between Infosys and Tata Consultancy Services (TCS). Is that influencing your stock picking?
A: I would not want to go into individual names, but I do not disagree with the idea that the valuation gap between Infosys and TCS will narrow over time.
Q: What about pharma stocks? You don\\'t like it or is it just less preferred?
A: I would say that pharma is less interesting than IT.
Q: It looks like the earnings cycle has bottomed out. Will cyclicals be a good bet at this point in time?
A: In broader terms, I do think the worst is over for the economy and consequently, I am looking to invest in domestic cyclicality. You want to be looking for consumer related cyclicality, so in general I would favour the auto and two wheeler sector.
Q: Sales of consumer companies have been slowing more than expected. We had Titan yesterday and a bunch of other companies that reported the numbers earlier. Is there any particular stock that you like?
A: I am less interested in the FMCG sector than I am in the more cyclical parts, that is why I highlighted the car and the two wheeler sector where results have been very poor over the last 12 months. There is greater room for rebound there.
Q: Speaking of autos I guess you know that Suzuki has entered into a deal to make cars in a 100 percent subsidiary in India which Maruti will market. Are you okay with that deal? Are you buying Maruti?
A: I would generally prefer to invest in companies that can do manufacturing and distribution rather than somebody that is just a distributor.
Q: Do you prefer four wheelers or two wheelers?
A: In the short-term, the two wheeler sector is probably a better place to be.
Q: What about the finance stocks? Do you like them in general, any sub-sector like private sector banks? Anything you like in the finance space?
A: Banks is not an area of particular emphasise for me at the moment. It is still a little bit early. Generally they are later cycle stocks and so it is not a big emphasis in my portfolio right now.
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