Investors in the Indian equity market should focus on firms able to grow regardless of government policies and instabilities, according to Matthews Asia’s Sunil Asnani.
‘We are benchmark agnostic and we like companies that have a sustainable model with a management that is transparent and can chart their own destiny,’ he said. ‘Two third of our holdings are in the small to mid-cap space while the benchmark is primarily large caps.’
The focus on stock selection has seen Asnani open more positions in the consumer sector, while fewer names are held in energy, public sector banks and government-linked companies.
Asnani warned of potential volatility set to be caused by the Indian General Election, which will take place before the end of May this year.
In addition, Asnani added Indian companies could face a number of headwinds from both a monetary policy and fiscal policy standpoint.
‘Monetary policy will be affected by inflation, with fuel inflation dependent on currency and oil price fluctuations, while food inflation might be sticky.’
‘So monetary policy might remain tight,’ he noted, adding that fiscal policy would largely be determined by the next elected central government.’
Valuations, Asnani said, are slightly below historical averages, but the direction of the market would be hard to predict going in the lead-up and immediately following the elections.
Asnani said previous elections had shown there was some upside in the fact that the past two election results had less impact than fundamentals or reforms.
According to Asnani, ‘In 2004, the market significantly corrected after a pro-business political party lost majority. But the next few years, we saw a bull market, part of which was due to improvement in fundamentals.’
‘In 2009, the market rallied with a stable government, but was directionless over the next few years because the government wasn’t able to carry out investment reforms.’
Over the 12 months ending December 2013, the Matthews Asia Fds-India lost 5.2 % in US dollar terms. This compares to a fall of 4.7% by its benchmark, the S&P BSE 100 index, over the same period, according to Matthews Asia data.