Anup Maheshwari
'Policy flip flops and delays are concerns'
Anup Maheshwari, Executive Vice President, Head Equities & Corporate Strategy, DSP BlackRock spoke to Puneet Wadhwa on the markets.
How are the foreign institutional investors viewing developments across the US and Euro-zone post the bailout packages? Do you think Europe is nearing a resolution to its debt crisis?
There is a level of nervousness in the global markets regarding the ability of Europe to develop an imminent resolution to the Euro-zone sovereign debt crisis. The markets are looking for a solution faster than what political compulsions will allow.
Thus, it is reasonable to speculate that foreign institutional investors are skeptical and nervous about the situation in Europe, which is evident by the depreciation seen in the Euro against the US dollar.
Although the ECB has taken measured steps to find solutions to the current crisis, we do not believe that Europe is nearing a permanent solution, which is what is needed to provide confidence to foreign institutional investors to invest in the global markets.
Does India still figure as a preferred investment destination among emerging markets (EMs)?
India has been one of the worst performing emerging markets last year, due to a combination of global and domestic factors. Rising oil prices coupled with a depreciation of the rupee have taken a toll on India’s fiscal position. A sharp rise in interest rates, a succession of corruption scandals and a slowdown in the investment cycle have additionally hurt India’s attractiveness for overseas investors.
In this backdrop, the FII outflow of only $500 million in 2011 has been a positive surprise as compared to the outflows experienced by other emerging markets. During the course of the current year, investors will closely watch the variables mentioned above (in addition the state elections) and the stock market valuations to gauge India’s relative position as an investment destination.
However, the long term attractiveness of investing in India remains intact, and we do expect some investors to use the current slowdown as an investment opportunity.
How are the foreign institutional investors (FIIs) viewing the so-called ‘policy paralysis’ with respect to the reform process in India? Do you think that these concerns are somewhat overdone?
In a world where India is competing for investments, any slowdown in growth or decision making is bound to have a negative outcome. Besides headline reforms, it is critical to see a climate conducive to doing business in an efficient and transparent manner.
Policy flip flops and delays are a concern area for investors and the government’s decisiveness in an uncertain environment will do a lot to change sentiment.
What is your own strategy at DSP Blackrock? Did you move into cash in the process of the fall in 2011? What are your top picks (sectors) in the current market conditions?
The returns of the DSP BlackRock Equity Fund during the period from January 2011 through November 2011 have outperformed the CNX500 benchmark by 4.40 per cent. During this time, our decision to maintain a defensive strategy and allocate a higher weight to the consumer discretionary and healthcare sectors helped the fund performance. The year 2011 saw the equity market going down every quarter and hence a defensive strategy worked well.
Going forward, we expect a lot more volatility, but we do also expect the market experience to be better than that seen in 2011. In this context, we are looking for value investments in some of the interest rate sensitive sectors.
Are you looking to increase your exposure to the interest rate sensitive sectors?
We are looking for value investment opportunities in interest rate sensitive sectors. The Reserve Bank of India (RBI) has already articulated their view that the cycle of rate increases is at its end and that monetary easing is likely to come through.
While the growth concerns are likely to continue for a while, we do feel that there are attractive valuations in select rate sensitive stocks that could produce significant gains over a two to three year period.
What are the downside risks to earnings growth going forward? Have the markets factored in the worst? What are you advising your clients at this juncture?
Although the Indian market has already seen a ~10 per cent downgrade in earnings and may see continued pressures in the December and March quarters, we believe that FY12 earnings growth could be near 10-11 per cent. What will be more relevant for the market, though, is the outlook for FY13 and FY14 earnings.
At this point, we do expect a sub-15 per cent earnings growth for FY13. This is partly reflected in market valuations which are below long term averages. As such, we are advising clients that the market could be volatile this year, and they should look to invest into any sharp corrections. The consolidation of markets over the past four years is gradually building a strong case for good long-term returns.
Do you expect growth to slowdown in China and hence demand for commodities getting dampened in 2012?
China’s growth is already seeing signs of a slowdown. The government there has been proactive in taking steps to create a soft landing and adjust to a slower growth rate. A slowdown in China is already being partly anticipated in commodity prices; the key risk here would be if growth decelerates faster than expected.
Source: www.smartinvestor.in