Speaking to CNBC-TV18 Jeff Chowdhry of LGM Investments said he didn‘t have exposure to IT. He said blue-chip companies like TCS and Infosys are well managed companies.
Speaking to CNBC-TV18 Jeff Chowdhry of LGM Investments said he didn’t have exposure to IT. He said blue-chip companies like TCS and Infosys are well managed companies. "The reason we sold out because we were concerned about the weak concern in the weak growth in US and increasing competition for large companies."
He also said it is going to be tricky from here on for IT companies particularly on the competition front. “We remain cautious about the sector.”
Talking about the telecom sector, he said that the Indian telecom sector is one of the hugely competitive ones in the world.
He said he wasn’t surprised banking sector has done well. “We have focussed on private sector banks like HDFC Bank and Yes Bank and historically shunned PSBs because the quality of management isn’t up there with the private ones.”
Among non-bank finance companies, he said, that Mahindra Financial Services is in good shape. “You have to make sure you are in companies in a niche which are growing.”
He is upbeat on companies in the consume space. Companies like ITC, Hindustan Lever and Nestle India are his picks.
Below is the transcript of Jeff Chowdhry’s interview to Latha Venkatesh and Anuj Singhal on CNBC-TV18.
Latha: There has been a strong rally in emerging markets (EM) and India has participated, even if it has not risen as much as the Brazils of the world. But, at these levels do valuations worry you?
A: No, they do not for a couple of reasons. I think you are right. Obviously, EMs have had quite a good year, up nearly 20 percent in US dollar terms. I see that is basically as investors taking some money out of the more expensive markets of the US and being a little bit more concerned about political risk, both in the US and in Europe and going into an asset class which is deeply underowned and very good value. And India, even though it is expensive within emerging markets, it is still good value relative to a lot of other developed markets.
Anuj: Tata Consultancy Services (TCS) is the other one we were discussing. That has issued a near profit warning. Would you sell out of your IT investments now or just keep buying at lower levels?
A: I will just declare that we do not have any exposure to the IT sector at this point in time. We did sell out about a year ago. And our view really on the IT sector is twofold. First of all, generally, the blue chips like TCS and Infosys, etc. are very well managed companies. And we have a lot of high regard for the management teams. The reason why we sold out, we were slightly concerned about the weak growth both in Europe and in terms of the US, one. And secondly, we were concerned about increasing competition, particularly for the large companies who were really competing against the other big companies like Accenture and IBM. So, when these companies were USD 5 billion companies, it was much easier for them to get market share. Now that they are at USD 40-50 billion, it makes it much more difficult. So, that was the reason why we sold out. Looking forward from here, it is going to be quite a tricky environment, particularly on the competition front for many of these companies, certainly the bigger companies and the other thing which has obviously happened over the last five years is obviously valuations of the sector have gone up quite a lot. So, at this point in time, we remain cautious about the sector and we are not planning to add to our positions or start positions at this point in time.
Latha: Let me come to the telecom sector. After the Reliance Jio launch, would you worry about this sector or are you a buyer at lower levels?
A: Simple answer is no, because we do not have anything in the telecom sector. So, we are not really worrying about it. You know this very well and we all know this very well is that the Indian mobile phone sector is probably the most competitive in the world. It has certainly got the lowest calling rates. When I come to India regularly, I am always surprised that after a week of calling, my entire bill is about Rs 5. So, it is a sector which obviously has huge amount of competition. In my opinion still too many players.0 Whether Reliance will be successful with this, I do not know simply, but at the moment, we are not joining in, in terms of the party as far as investing is concerned.
Anuj: Maybe you meant USD 5. What about the banks? Have you started buying the public sector undertaking (PSU) banks?
A: There are two parts to the question here. Let me answer the first part. We are absolutely not surprised that the banking sector has done well. It has been one of our biggest overweights for many years. We focused, we have focused our attention on the private sector banks, HDFC Bank and YES Bank are our biggest holdings, continue to be our biggest holdings. And historically, we have shunned the PSU banks for all t he reasons that you know, but primarily, because the quality of the management I would say are not up there with the private sector banks. Now obviously, this sector has done very well, people have been looking around for other laggards, obviously the public sector banks, relative to the private sector banks are obviously very cheap. But in our opinion, we want to stick with quality and that means private sector banks even though they may be more expensive than the public sector banks at this point in time. So, no real changes to our portfolios we like very much the banking sector that really is a warrant to play whatever you want to call it on the Indian economy. And we are sticking with our positions in the private sector banks.
Latha: What about non-banks? Non-bank finance companies are the ones that have been the leaders in this rally.
A: Selectively. Things like Mahindra and Mahindra Financial Services is in good shape, a number of others as well. That is reasonable. But with the non-banking financial sector, you have got to be very careful because they do tend to be in very niche areas or very niche markets. And you have just got to make sure that you are in companies which have a niche which is growing and where there is no competition. The reason why we prefer the private sector banks, HDFC Bank or YES Bank is because of their footprint obviously, both in terms of across India and also across sectors and in terms of different areas of the market. So, that is really it. But yes, selectively, we do have some non-bank financial services companies.
Anuj: What else do you like in the Indian space?
A: Just following on with the themes I have just touched upon, I would not say everything, because that is the sweeping generalisation but large parts of the consumer sector. So, companies like ITC, companies like Hindustan Lever, companies Nestle, companies which are basically in the consumer space. For us, forget the next 1-2 years again, I have been involved in India for the last 20 years and again, if I was making a 20 year prediction, I would be saying to people, investors, really stick with those consumer companies and consumer companies where the products are not going to fall out of fashion. Everyone needs to drink, everyone needs to wash themselves and increasingly so, everyone needs to use other household products, etc. these are the types of companies, where frankly, they will either be much bigger than they are in 20 years time or they will have merged and become even bigger.