Perhaps the market reaction today was a little bit premature but this is understandable after the last month or so, said Jonathan Schiessl, Fund Manager, IIFL AMC, in an interview with ETNOW.
What a thumping standing ovation by equity market participants to the exit polls indicating the current regime continues on 23rd and Narendra Modi continues as the Prime Minister. Do you think this reaction is a little too premature?
Clearly, you got this reaction in the backdrop of last month where markets have been gyrating all over the place and we have seen a bit of pressure. It is a parallel move there is no doubt about that and clearly, there has been a lot of cash on the sidelines. Perhaps the market reaction today was a little bit premature but this is understandable after the last month or so.
Coming to foreign flows into India, there seems to be a sense that if we move past this big event favorably,
India would become their preferred choice given the otherwise uncertain environment in global markets.
Would you agree?
Certainly, from a global perspective, it is too far below a decent case of sustainable growth that we can find in India and anywhere else. The issue remains the slowdown that we are currently going through with interest rates in India remaining very high. But obviously in a global context, if you are slightly more bearish on and concerned about continuing trade war issues rumbling on, then the domestic India story does look more attractive. Clearly, what goes on in the oil complex is going to be something that can provide a bit of a volatility sometimes.
How concerned are you about liquidity because otherwise financials has been the preferred choice for investors?
We have overweight financials and that sector still is very attractive on a selected basis. When you look at the earnings coming out this quarter, however, it is worrying. On the consumption side, it is not just the auto space which is being suffering, we have seen a slowdown across-the-board. There are multiple issues -- be it the liquidity squeeze, the election, real interest rates being too high which is discouraging further borrowing -- but the reality is whoever gets back into power on Thursday, does have a government hand trying to gets its economy going again because earnings have been pretty lacklustre and it is difficult to see this market in a short term pushing too much higher until the earnings recovery happens.
Where do you feel one could look at investing even now given that this could be the beginning of a further move?
The auto sector has gone through the most pain over the last year or so. It is going to be some time before you are going to see any positive data points in that sector. Some real value is emerging there and also in selective banks and financials. I still think you have to be very careful in deposit franchise that the entity has. But certainly in financials and hotel space, you are seeing value it is interesting if you look at India, on a relative valuation basis we are not too far off. It is sort of at average levels on a relative basis.
The markets had a big push up today but when you look at relative versus other markets globally, we are thereabouts and you can build quite an optimistic scenario of a lot more money coming into this market.
Would you look at broader markets as well? Is it still too early to look at some of the higher beta names or dig for value there?
I think a bit of both. It is not a bad thing to have some of the higher beta names, some of the infrastructure plays, which have been under-performing for some time. Clearly, if you do get a stable government in the centre on Thursday, then those names probably have further to rally. In some of the small or midcap space we have seen selective recovery but as a group, still year to date it has been struggling. There are certainly some interesting stocks out there and we need a period of good growth ahead of us to drive up earnings.
What is your outlook on midcap banks? Which are the sectors that you would see forward?
It depends on your investment horizon. In today’s surge, a lot of the slightly more higher beta bank names have started to move vis-à-vis the HDFC Banks of this world. If you are coming into the market for a short-term bet, then absolutely look at some of the smaller stuff there. The less high quality names would probably go further in the very short term but anybody who is investing in the market for the medium to longer term, sticking to the tried and tested management teams has certainly worked as a strategy in India. That will carry on working for the period ahead and we have such an exciting growth opportunity that one of the most important things that we focus on is the quality of the management team and the ability of the management team to deliver on this fantastic opportunity that is called India.
But obviously if you are going for metals, there is good demand coming out of India in that space but there are import issues, Those sectors are very much more exposed globally and there are other factors that you got to monitor when you are looking at the metal space. It is quite a big part of the index but it is slightly more problematic
What are you going to be watching out for in terms of cues going forward?
Clearly global events are going to be dominated by politics. We are just in that phase where the trade talks between the US and China are going to be important and also developments between the US and Iran and the impact on oil. I think quietly China is recovering and their economy continues to recover. So it is going to be interesting to watch what happens in Europe from an export perspective because that has been disappointing up to this point. But if China does start to recover and things change there, yes, but we are in a bit of political event risk at the moment.