India stands out among emerging markets despite the recent volatility, says Anand Radhakrishnan, chief investment officer...
India stands out among emerging markets despite the recent volatility, says Anand Radhakrishnan, chief investment officer, Franklin Equity, Franklin Templeton Investments, India, in an interview with Chirag Madia. Excerpts:
What is your outlook on the Indian markets?
India still stands out among emerging markets in terms of economic growth and stability in corporate earnings. While growth may be below expectations, the existing pool of profits is reasonably stable, which makes foreign investors more confident about India than countries like Russia, China and Brazil.
Second, unlike other EMs, India offers a diversified basket. Also, we have seen many event-led flows; a lot of smart money came before elections. Some of that ‘hot money’ would obviously move out. Having said that, larger and serious foreign players will continue to invest.
There is no doubt that we are in middle of a bull market. If you ask me whether Indian markets would correct, my answer is ‘yes’. But will corrections change my outlook? My answer is certainly ‘no’.
What factors can drive the markets from hereon?
The most important factor is credit growth, and that is not picking up as expected. Even the money supply growth rate is 12%, which is quite poor compared to the long-term average of 17%.
To start the credit growth cycle, someone needs to borrow. This will happen only when there is some confidence of future streams of income.
That confidence can come only through policy action. Having said that, it doesn’t mean that we don’t have any opportunity. There are companies that are growing at 15-20%, such as those from healthcare or IT sectors. Then, there are some sectors like automobiles, which are growing at 5-10%, but have the potential to improve.
Even private banks are growing at 15-20%. Because of intra-sector dynamics, many companies are growing at a faster rate and we have an opportunity to invest there.
What is your view on corporate earnings?
If corporate earnings don’t recover, we might be on a sticky wicket. For FY16, markets are predicting a 16-17%-plus growth on earnings. We could meet that target only if we start growing from now. The June and September quarters will be critical. Going by anecdotal evidence, we don’t see a dramatic improvement in Q4 numbers.
With valuations expensive, which sectors do you see opportunities in?
There are enough opportunities in the market even at this point of time. At this juncture, stocks that are of high quality and delivering high growth are getting the highest valuations. But with something that is of slightly lower quality, there is a disproportionate discount even now.
Except for FMCG where most stocks are expensive, one can find good opportunities in all sectors.
There are stocks where the earnings have disappointed, but would see a correction — we can use that correction phase as an opportunity.
What are the key risks for the Indian markets?
The government appears to be under tremendous pressure to deliver. If it can even achieve an 6.5%+ GDP growth — according to old series number —there will be some respite. The government needs to reach out to people to solve the problems rather than trying to do it politically among a close set.
What strategy should investors adopt?
I would urge investors not to look at short-term returns and invest according to their risk profile. They also need to stay for a longer duration and it’s advisable to invest money through SIPs.