Jorry Noeddekaer, member of Asian Equities Team at New Star Asset Management says that they are underweight on India as valuations are expensive. He further states that India's current account deficit is also a cause for concern.
He further states that India's expanding budget deficit may trigger more government borrowing. Noeddekaer informs that the company is positive on RIL, Reliance Communications, Bharti and Infosys.
Excerpts of CNBC-TV18's exclusive interview with Jorry Noeddekaer:
You are underweight on India; is that just valuations or do you think that the Indian growth story is not as strong as it looks?
It is very much to do with valuations. Our investment process is based on stock picking, so we focus on valuation and the business model for the companies. So valuations are definitely a large part of the explanation for being underweight on India.
But we also see certain other kind of risk factors in India; one of them being the current account deficit, where India is running a deficit. One of the few emerging markets globally also have current account deficit. So that is a concern, especially if we have an environment where global liquidity is being reduced. It could put pressure on some of the countries that would be relying on financing flow from outside.
One of the other macro economic risk factors, which would be perceived in India and which may take the conclusion that India should be an underweight, is the budget deficit. India seems to keep slipping on targets for the budget and the budget deficit actually keeps expanding. We see that as a worry for two reasons; first of all, it gives some kind of instability.
But the other factor is that it means the government has to go out and keep financing the budget and that means, they will go out to the market. Right now there is a fight for getting money, so that could put even further pressure on interest rates. And now, with the current interest rate environment and inflation scenario in India, this will definitely not be the best case to come out with expanding budget deficits.
From the Indian basket, which are the stocks and sectors where you hold positions?
There are still some stocks that we like in India. We still like Reliance very much, which still has a very interesting growth profile. The refinery business is doing very well and is placed in the right part of value chain, as we see it. The E&P (Exploration and Production) business is very interesting and it is getting into some interesting investment in retail and we also find that very attractive. So we still can see a good upside and value in a company like Reliance.
We also like the telecom sector. We feel that the industry structure is well behaved and we hold companies like Reliance Communications and Bharti Telecom. We also like Infosys. We also see the whole outsourcing steam still being relevant and we believe that Infosys is probably one of the companies with big execution capabilities in that space. So that would be some of the companies that we like.
What is your exposure to the Indian markets at the moment?
In a global emerging market portfolio, we would hold weightage of around 5-5.5 per cent, which is significant underweight in terms of a global emerging market context. So we are definitely underweight there.
In dollar terms, how large will that be?
We cannot put an exact amount, but we hold around $1 billion in Asia. And on an average, we would have around 5 per cent dedicated Asian money in our fund.
For your Asia fund and for your emerging market fund, at this point, are you just sitting on a higher degree of cash as a cautionary move or are you largely invested in most markets?
We roughly would hold 2-3 per cent cash. Generally, we do not have a tendency to sit with a lot of cash. Our philosophy is to go out and find good companies and we will still be moving the money to where we can find value and where the risk-for-return profile is attractive. So as such, we do not sit and accumulate cash.
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