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We're bullish on FMCG, infra, banks: Pictet Asia
Moneycontrol.com
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January 15, 2007 17:14 IST

Commenting on markets, Sanjay Lodha, Senior Investment Advisor of Pictet Asia Private Banking states that Pictet Asia is bullish on infrastructure, FMCG and banking.

According to him, the Indian market valuation is stretched and needs to be selective. With regard to the FMCG companies, Pictet Asia retains the opinion that they are likely to see pricing power and better margins.

Lodha feels that conditions are still favourable for equities and that there isn't much evidence of liquidity contraction. His outlook for global equity remains positive.

Excerpts from CNBC-TV18's exclusive inerview with Sanjay Lodha:

You have been a bit apprehensive about valuations in India and you are actually underweight as you told us last time. Are you reconsidering your view in the light of the markets performance or do you stick to your guns and remain underweight?

I still continue to believe that in the Indian markets, the valuations overall seems to be a bit stretched. There is a general consensus on the macro view on India and nobody doubts that.

However, when you look at the market valuations and you compare it with the peers in Asia and overall the equity markets in India do seem to be on a higher side in terms of valuations, so I believe that those concerns still remain and now is the time to be more selective and try and identify relative value plays within the sector or within the markets in India.

What is your call on banks, because last we checked with you, you seemed to like that sector?

I continue to like the sector; the banks will continue to benefit from the overall growth in India, the overall growth in the credit sector in India and also from growth in the business environment and disposable incomes of the Indian citizens. So I think that it is continuous to be a very good outlook for Indian banks overall.

Aside of that what would be your top exposures in India right now, sectorally or in terms of largecap stocks?

Everybody still continues to believe that the infrastructure overall in India is still inadequate, so I would say that this is one area where you continue to see money pouring in, will continue to see opportunities where businesses can get involve in the sector and make good profits out of it.

So this is one area where I would be having a positive outlook in India but again you have to look for relative value within this particular sector, you cannot just go ahead and blindly buy the sector.

We are also looking at the fast moving consumer goods, which somehow tend to be a little more defensive as well as at the same time; the fundamentals in this particular sector continue to look good. They continue to benefit from the rising disposable income again in India, so I think that they will continue to have good pricing power and they continue to benefit in terms of margin expansion.

Anecdotally from the start of this year what have you seen by way of money allocation to a market like us though, are you seeing more money being pushed into India for example or even the BRIC nations?

In general overall the outlook for global equities remains positive; it still remains to be the most attractive asset class to be invested in. The overall strength and the financial health of equities market continues to remain strong and we are not really seeing much in terms of evidence of liquidity contraction in the near future.

So I believe conditions continue to remain favourable overall for equities and within equities emerging markets although certain pockets are a little more expensive, little more highly valued but you still find good value especially in the Asian arena where you can enter into markets that are very attractively priced today and can provide you good positive growth outlook.

Tactically, though because of your underweight rating on India at this point, are you largely sitting on a little more cash, are you mostly deployed in the market, what have you done?

We tend to be a little more defensive on India and what we expect is that hopefully the current corporate earning season will have an overall positive surprise for the markets, which will continue to support at least in the short run the market valuations and then slowly for over a period of time, we will see that there will be a re-rating within the multiples by the earnings increasing on the positive side in the market either not doing anything or probably contracting a bit to provide attractive valuations to the Indian markets, which otherwise has a very good positive outlook.

And what to you would be more appealing valuation or market level to enter into?

About 16-17 times earnings multiple will bring it within the range of the overall Asian equity market valuations and at that point of time, Indian markets will start looking attractive, specially when you factor in the more positive outlook for growth compared to the other Asian nations.

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