Even though most of Asian funds are overweight on India, the view isn't anything that the markets should be worried about, according to Susmit Patodia, Head of Sales, Institutional Equities, Motilal Oswal Financial Services. Emerging markets flows have been strong over the past few weeks, he told CNBC-TV18.
Most Asian funds are overweight on India, but that is not something the markets should be worried about, feels Susmit Patodia, Head of Sales, Institutional Equities, Motilal Oswal Financial Services. Flows into emerging markets in general have been quite strong over the past few weeks, he told CNBC-TV18.
Traditional market wisdom says that too many funds being overweight on a market at the same time is risky because the correction can be sharp when sentiment changes for the worse.
Debt markets are rallying and a lot of investors are more bullish on India than they have been in the past, Patodia said. Investors are still upbeat about India as the country is among the handful of large economies with a 7 percent GDP growth rate, he added.
Patodia is hopeful that a good monsoon should translate into demand revival and in turn a pick up in topline growth of companies.
Below is the verbatim transcript of Susmit Patodia's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What is the sense you are getting, are people still willing to buy on dips, what is the general investor mood there?
A: The general mood is quite upbeat still. India continues to be one of the few countries with 7 percent gross domestic product (GDP) growth rate -- 7 percent in this decade is like the new 10 percent of the yesteryears. We have not only seen interest of foreign institutional investors (FIIs) in the equity markets but also now the debt markets have followed through as well. That is a big sign of confidence for the Indian economy as a whole.
Sonia: A lot of Asia funds are overweight India by almost 100-200 basis points (bps) so in a sense India is a bit over-owned. Would that be a concern if there is any kind of global risk-off towards the end of the year?
A: The India overweight is again a function not specifically with regards to India but overall emerging market (EM) flows, if you look at the EM flows, it has been very strong over the last few weeks in this calendar year and with commodities still being not in great shape, most of the other EMs, which are commodity dependent have not found flavour with investors. So unless we see a massive commodity reversal in terms of leg up, I don’t think this overweight is to be worried about.
The bigger worrying factor would be the overall EM flows rather than India overweight as such.
Latha: You said that there is a lot of interest in Indian debt, is it?
A: Yes, so we are seeing debt markets rally as well and we are seeing a lot of investors like the debt counter parts of our equity fund managers also wanting to know about India more than ever before.
Latha: There have been a little bit of domestic institutional investors (DII) sales. What is the sense you are getting at Motilal Oswal itself? Are your funds starting to see a petering out or a profit taking by investors and the other investors who have come in, what are they saying -- domestic guys?
A: I may not be able to comment specifically on Motilal Oswal AMC but the overall trend of the last two months has definitely reversed than what we saw in the earlier part of the year. There has definitely been some flow towards balanced and debt funds as the returns there have outpaced the equity funds and that is what is leading to a little bit of tepid flows into the equity funds. So if you look at the balanced fund flow and the debt fund flow, that has still been massive. So it is not like a complete withdrawal of retail funds from the mutual fund industry as a whole.
Sonia: Give us a quick comment on what you have made of the earnings season so far, it has been sort of a hit and miss in certain sectors but what is your own prognosis hereon?
A: The earnings is very similar to the last five quarters if I may say where topline growth has been very anaemic, this is the sixth consecutive quarter of less than 5 percent topline growth. We have to go back 10-12 years to see this kind of a phenomenon. The margin uptick continues. So your EBITDA growth for this quarter continues to be in mid-double digits, which is in-line with our estimates. We are hoping that with a good monsoon and rural economy pick up and as the public sector undertaking (PSU) banks clean up gets over, the topline growth should return for the companies that we cover.The Great Diwali Discount!
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First Published on Aug 29, 2016 10:56 am