See 10-15% returns on equities in 2017; like pvt banks: Ashmore

There have been some cold winds blowing through EMs in Q4 mainly for reasons nothing to do with EMs, he said.

Consumer discretionary stocks are a good long-term play. “In the shot-term, I will be cautious.”

He likes private banks and believes that public sector banks aren’t cheap enough for him to buy.

He expects double-digit returns of 10-15 percent at the index level for 2017.Below is the verbatim transcript of Jan Dehn's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Today is the last day of India's currency change, has it left the economy more vulnerable or is this only a passing phase according to you?A: No, it has not left the Indian economy extremely vulnerable. It has been a temporary shock. It has not been executed perhaps as smoothly and as painlessly as expected but at the end of the day, this is very much a temporary transitory aberration and the Indian economy will come out of this without any lasting damage and it is probably coming out of this ultimately in a stronger place than where it went in. I think it is quite important to look beyond the demonetisation process because the underlying fundamentals in the Indian economy remain very solid and there is plenty of grounds to be optimistic about India going into 2017.Latha: That point is taken but that is now how the foreign institutional investors (FIIs) have seen it. Since November 8, FIIs have sold off from all emerging markets because of Donald Trump but they have deserted India a little more. Do you see that tide turning anytime soon?A: Yes, I am sure it will. Markets tend to get nervous when there are disruptions and uncertainties and certainly the demonetisation process in India and Trump selection were both major sources of uncertainty, they were quite unexpected events and the market has been struggling in fact a little bit trying to process these two events but time will show that neither Trump nor demonetisation will have any serious adverse fundamental implications for India in particular and so I think investors should view the underperformance that we have seen in Indian assets as an opportunity to add to exposures.Sonia: Do you find Indian markets attractive at current levels since you are recommending investors to use this as an opportunity?A: Yes, I do. I like them both from the equity market and from the fixed income perspective. The demonetisation process will ultimately lead to lower inflation in the Indian economy and more easing from the Central Bank and that will support bunds while I think the economy is going to rebound in the course of 2017 and that should be supportive for stocks particularly in the banking sector and in the consumer sector which will kick in later in the year. So if I have to sequence my investments in India, I would still have a bias for fixed income in the early stages of the year but then rotate into equities in the course of the year.Latha: That is good to hear if you like both pillars, but the Nifty at the moment is pretty close to its Brexit day low of 7,920, just about 100 points higher. How much more of a downside do you see at all, do we get to see 7,600, 7,500?A: I don’t see a lot of downside here. Remember that there have been some cold winds blowing through emerging markets in Q4. Mainly for reasons that have nothing to do with emerging markets themselves, Trump selection is one, Fed hike in the US, the Italian referendum, ECB tapering and the usual year-end positions squaring, this tendency for markets to reduce exposures we get towards the end of the year but as we start next year, a lot of investors are going to be allocating funds and many of these funds are going to emerging markets because emerging markets have performed quite well in 2016 particularly in fixed income. So I expect to see positive flows back into EM including into Indian markets at the beginning of 2017, which is not very far away.Sonia: FIIs have sold more Indian debt than they have sold off equities, do you see them coming back into the Indian debt market at least in 2017?A: Yes, I do and in general I would say that the fixed income proposition is stronger than the equity proposition mainly because the US equity market has run up and they are very long way and because the dollar has become very strong. When you look at the yields on offer in India as well as in other emerging market countries -- they are currently extremely attractive compared to those in developed markets. So we are going to see flows out of developed market fixed income into two areas, into US equities and into emerging market fixed income. After all investors will have to have some fixed income, there are going to big losses in developed markets. So they are better off having emerging market fixed income and that should benefit Indian bonds as well.Latha: Let me come to the stock market and to some specific stocks. Some of the much loved consumer discretionary stocks like Asian Paints, Eicher Motors have fallen nearly 30 percent from their 2016 highs. Do you think these stocks represent value to you now?A: Yes, consumer discretionary is a good play. If you are a little bit more longer-term in the short-term I think I would still be a little bit more cautious as we see the uncertainty surrounding Trump's policies and the final ramifications of demonetisation play out over the next couple of months. If you can look beyond that, I think you definitely want to take exposure to the cyclical side of the economy that is consumer discretionary as well as banks.Sonia: I am very interested to know what your thoughts are and banks in fact -- are you buying any of them or even the non-bank financial companies (NBFCs) which have now started to recover a bit?A: I like the private banks. That is where there is most upside in response to a cyclical upturn. We still need to see more work done on the public sector banks. There may be room if Modi's political capital picks up after the demonetisation set back. I think there may be political capital at some point next year to begin to deal with the public sector banks but I don’t think they are cheap enough yet to warrant buying them. So I think private sector banks are the place to be.Latha: In 2017, will the Nifty go pass its prevailing all time high of 9,000 or just to rephrase, what kind of returns can you expect at an index level?A: I am expecting relatively modest gains for equities but nevertheless double digit returns, somewhere between 10 percent and 15 percent should easily be achievable for 2017.