Indian equities will continue to rally on election-related hopes, feels, Masha Gordon, VP & Head of EM Equities, PIMCO. At the same time, PIMCO is bullish on India because of the improvement in the macro-environment, notably the narrowing of the current account deficit.
In an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Gordon says India ranks among key growth markets in the emerging markets space, even though investors are more inclined towards developed markets at this point.Gordon is hopeful that the new government will restart the investment cycle, which in turn will revive the economy. PIMCO does not have any position in IT stocks currently, but Gordon says she is open to buying them if they correct around 20 percent.PIMCO is bullish on financial services stocks, and has been steadily buying them for a while now. PIMCO is also bullish on two-wheelers and media. In particular, she sees digitization as a powerful trend. On specific stocks, Gordon says her fund is overweight on Tata Motors.
Also read: Sensex likely to pause; buy every dip: Altaira
Below is the transcript of Masha Gordon’s interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy
Q: Are global funds still preferring developed markets (DMs) over emerging markets (EMs) or is their some change on he edges in this trade?
A: It is fair to say that we have seen global funds primarily attracted to continued positive momentum and upgrades that dominate developed market equity landscape and has disappointed by their continued challenging macro backdrop in EMs.
Q: India has seen lot of inflows, do you think therefore the flows are discerning and not just bracketing all EMs into one basket?
A: I am sure the name of the game is differentiation. Overall EMs are facing challenging macro picture that is on the back of ongoing interest rate normalization; challenges that have been created over the years of indulgence. So we have pretty high leverage in the number of EM countries which make it difficult to outgrow the problems.
India stands out because we have had improvements on the current account deficit (CAD) front and we have seen a clear improvement in conduct of the monetary policy. So if you wish this is EM investors trying to go to a place where there maybe a momentum of growth developing on the back of the hopes with the restart of investment cycle and where the currency has behaved differently from the EM peers.
Q: Are valuations in the Indian market still attractive after the 5-9% rally we have seen from the recent lows?
A: I think it is overstuffed to find Indian market to stack well valuation wise in the times when hopes are running high - Indian equities squarely ranked amongst growth equities and therefore the more than important argument is thinking about the projected growth and how we think about growth and then put valuations in that criteria.
So, we have high hopes for change in the government for the restart of the investment cycle and I think the market currently probably does not differentiate between the winners of that and those companies that may not fare as well.
I would argue that whilst there are macro trades that might takeover say financials but on the interest side, it may take time to see the benefit of the more decisive or proactive government to come through the earnings.
Q: In this huge rally, IT stocks have sold off, would you also trim your positions in IT?
A: I don’t have positions in IT stocks but it is a natural trade – as you get excited about domestic prospects, you take money out of winners that may have last tailwind on back of stronger rupee and reinvest in cyclical stocks.
I would be looking for value emerge in exporters and if we were to get towards the elections and if we were to see a 20 percent correction in that sector then I would say that is an opportunity. But the pharma, IT stocks have done well on back of earnings improvement in contrast to the rest of India, so it’s only natural that they have some of that reversion happening today.
for the entire interview watch video
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