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Last Updated : Feb 25, 2016 01:47 PM IST | Source: CNBC-TV18

Like India; may increase exposure to quality stocks: Geoff Lewis

Geoff Lewis, Global Strategist-Capital Markets Group at Manulife Asset Management, says India will benefit more from falling commodity prices and domestic growth.


While global markets are likely to remain choppy, Indian equity market looks attractive at these level, says Geoff Lewis, Global Strategist-Capital Markets Group at Manulife Asset Management.

India will benefit more from falling commodity prices and strong domestic growth, Lewis tells CNBC-TV18. He has a neutral view on India and believes investors can increase exposure to quality stocks.

Further, he says India's current underperformance is not because of tax fears, but it is because foreign institutional investors (FIIs) are worried that its forward earnings may be downgraded.

Below is the transcript of Geoff Lewis’ interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: This is the point that is really irritating a lot of people in the markets, that India has stopped performing with global markets, in fact, is underperforming the emerging market basket. Is that something that you are noticing and is that something that an India investor should worry about?

A: It is something we have noticed and as you said, India is off about 14 percent in terms of Morgan Stanley Capital International (MSCI) India, versus about 7 percent for emerging markets. So, there is a degree of underperformance there and that is surprising given that India is likely to benefit more from things like low crude oil and low commodity prices and it has stronger sources of domestic growth.

What it is telling us is that first of all, this is a general risk-off episode and foreign investors have been withdrawing money, going back to a firm base and of course, they have been quite significantly overweight India. So, we are seeing outflows from foreign institutional investors (FII) totalling about USD one billion year-to-date. Whereas, last year, India still had net inflows and has suffered less in terms of withdrawals of foreign money than the average emerging markets. So, it is a puzzle as to why this is happening.

One thing perhaps is that in a world where everybody is now convinced that there is going to be low growth, people looking at India have noticed that earnings estimates have been over optimistic. They are still being downgraded and quite heavily. So there maybe some doubts now creeping in about those forward earnings numbers.

Sonia: That point is clearly taken. We have not seen any recovery in earnings and we have been patient for a very long time. But the other aspect that someone from JP Morgan brought out yesterday, was the fact that a lot of foreign investors are frustrated with respect to taxation and that way it is treated in the Indian market as well. Is that the sense you are getting from a lot of the FIIs that you speak to with respect to India and is that a fear heading into the Budget?

A: I did not quite catch you. Are you talking about taxation?

Sonia: Yes, the way tax is treated in India, like long-term capital gains tax, the taxes that FII investors have to pay and the arbitrary way in which it is treated in India. So, that is a bit of a frustrating factor for most FIIs. Is that something that you are picking up as well?

A: I have not picked it up as a particularly new issue. That has been a long running battle between FIIs and the Indian authority. Sometimes we have seen difference of views between the taxation ministry and other parts of government. So, that certainly has been a factor which has, at sometimes, hurt relations between foreign investors, but I do not think it has been a major driving factor in terms of the attractiveness of the Indian stock market. So, I do not think it is particularly at the fore in terms of being a major factor behind India’s current underperformance.

Latha: Do you think the global aggressive sell-off we saw from January 1, this year is kind of ebbing off? We are seeing some stability in investor markets? And secondly, has India now fallen enough to be attractive to you?

A: The fact that has been undermining investor confidence, there are real concerns over US recession, there is concern over China hard-landing, there is concern over oil, there is a weak demand. On all those three factors, we are pretty positive that there will be no US recession, no hard landing and that oil is mostly in the short-term about supply rather than demand. Markets will continue choppy however. The big worry for us is that we are not seeing signs of any improvement in earnings. There seems to be general deterioration, disappointment in most regions and therefore, markets will continue choppy. And the technicals are not pointing to any early rebound. At these levels, India is looking attractive. It has come off more, and it is a market we like. We are neutral in our global and regional portfolios at the moment, but we will be looking to add good quality largecaps at better valuations.

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First Published on Feb 25, 2016 08:47 am
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