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Bullish or bearish: where five managers stand on India

While some see market reforms in India as disruption, some see the reforms supporting the country’s long-term growth. We ask five manager their views

James Thom
Senior investment manager – Asian Equities
Aberdeen Standard Investments

India is one of our favourite emerging markets and we have a sizeable overweight in our regional portfolios.

The country is not without its challenges, however. There are concerns around inflation and the impact of rising costs on company profits.

But Prime Minister Narendra Modi has shown himself willing to sacrifice near-term growth to deliver reforms that will benefit the economy over the long run.

While the roll-out of demonetisation and the goods and services tax have caused some disruption, we are seeing signs of a recovery in demand that should feed into further earnings upgrades.

Valuations continue to trade at a premium to the region. India has structural advantages, too, such as a young population and expanding middle class, combined with a wide range of profit-driven businesses with sound track records of delivering results. 

From a portfolio perspective, we find financial services most appealing. We favour private-sector lenders and have retained long-term positions in HDFC, HDFC Bank and Kotak Mahindra Bank.

 

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James Thom
Senior investment manager – Asian Equities
Aberdeen Standard Investments

India is one of our favourite emerging markets and we have a sizeable overweight in our regional portfolios.

The country is not without its challenges, however. There are concerns around inflation and the impact of rising costs on company profits.

But Prime Minister Narendra Modi has shown himself willing to sacrifice near-term growth to deliver reforms that will benefit the economy over the long run.

While the roll-out of demonetisation and the goods and services tax have caused some disruption, we are seeing signs of a recovery in demand that should feed into further earnings upgrades.

Valuations continue to trade at a premium to the region. India has structural advantages, too, such as a young population and expanding middle class, combined with a wide range of profit-driven businesses with sound track records of delivering results. 

From a portfolio perspective, we find financial services most appealing. We favour private-sector lenders and have retained long-term positions in HDFC, HDFC Bank and Kotak Mahindra Bank.

 

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Felix Lam
Senior portfolio manager Asia Pacific equities
BNP Paribas Asset Management

We overweight India in our portfolio. In Indian equities market, we see opportunities in Indian private banks, IT services and consumption.

India benefits from important economic characteristics – large, young and growing populations, relatively low income per capita, and more domestic-oriented economy than the rest of Asia-Pacific. The pace of domestic reform is probably the most important driver of macro outlook for India.

Meanwhile, the accelerated reforms in India will help support the country’s long-term growth, in our view.

We have been maintaining our preference for India, for an underlying economic recovery from a cyclical slowdown driven by a lack of supply response towards the country’s rising demand, high inflation and twin deficits.

We are watchful of the upcoming changes and continue to assess, while we do not believe the current run up in share prices have fully captured longer term economic benefits, given ROE of the Indian market was on the verge of recovering from multi year low.

As an example, we favour Indian private banks and Non-Banking Financial Companies (NBFCs) over public banks, as their growth tailwind stems from both a low penetration and disproportionate market share gains.

Before 2016, SOE banks' market share represent approximately 70%, but this has changed.

These banks lost a lot of market share in late 1990s and early 2000s. SOE banks' market share in total bank lending has come down to 66-67% in FY 2017. This provides additional opportunities for Indian private banks to grab even more market shares over the medium to long term.

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Paul Danes
Portfolio manager for Asia equities
Martin Currie

Over the past couple of months, there has been plenty to worry the market in India – global rate rises, higher oil prices, a bank scandal and generally higher volatility. Yet it is a market in which we continue to find interesting opportunities.

The key to this is looking beyond the near term and considering the long-term opportunities.

On a three- to five-year view India has some of the Asia regions’ most attractive growth opportunities.

Valuations are not especially cheap versus history, but that is true of global equity markets and relative to world markets they are trading at average levels.

Earnings, however, have disappointed in India in recent years and so unlike many markets there is a real possibility of an improving earnings environment, especially as the structural reforms begin to take effect and allow for renewed domestic investment.

One challenge in India as hinted at above is valuations. Many of the long-term growth companies are trading at levels which don’t allow for any disappointments.

However, we find that some of the auto companies offer long-term growth driven by increasing penetration and wealth, with valuations which are no higher than the past.

Another sector we find attractive is the Indian IT sector. Here, valuations look very attractive to us as the shares have been discounted based on a slower growth outlook than the past.

Although the industry is undoubtedly more mature, the companies create exceptional returns, which over time, compound and are increasingly allowing them to pay out more and more cash to shareholders.

 

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Arnout van Rijn
Chief investment officer
Robeco Asia-Pacific

We are underweight India. It is a high-expectation market and we cannot find many ideas for value investors. Stocks are supported by domestic fund flows though foreigners have begun to reduce.

The government and regulators keep shooting themselves in the foot with investor-unfriendly measures like the recent introduction of tax on long-term capital gains.

How much bad news can a market shrug off? Bond rates have recently come down as the government has curtailed fresh issuance. Still, multiples remain too high with strong earnings growth always just around the corner but with persistent downward earnings revisions.

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Anh Lu
Portfolio manager for Asia ex Japan equity
T. Rowe Price

India’s government also appears committed to pushing through important market improvements. Prime Minister Narendra Modi has delivered on a demonetization scheme and the introduction of comprehensive, single goods and services tax.

The government has also enacted a US$32 billion recapitalization of India’s large, state-controlled banks amid bad corporate loans. It is a step in the right direction.

We currently maintain our view to underweight India and but would look selectively in the market should we see signs of revival in the capital expenditure cycle.

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Anh Lu
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