The Hindu Business Line : Downside limited in Indian markets: Martin Currie

Ms Kirsty Watt, Investment Manager (Asia and Global Emerging Markets), Martin Currie, believes that analysts are hesitant to upgrade their earnings until there is further clarity from the Fed and the direction of earnings in the US.

Discussing India, she said that India's valuation difference versus the rest of the world has narrowed. She added that there is pressure on Indian rates to move up and hence, they are currently cautious on the interest rate sensitive stocks.

But she also said that the downside in Indian markets was limited and that she is looking at 13-14x forward PE for India.

Excerpts from CNBC-TV18's exclusive interview with Ms Kirsty Watt:

What is your sense of the Indian market after the earnings season that we have gone through?

We are still very constructive on the Indian markets. We had a look at the results and taking out oil and gas, we estimate the revenues are up around 29 per cent year-on-year and profit growth should be around 23 per cent. This is very encouraging and in line ... in fact, slightly above to what the consensus was looking for.

If one looks at the moves today, while we are encouraged that the market has moved up, I would caution that volumes have been very low. Post-results, analysts seem to be reluctant to upgrade numbers.

I think basically what we are seeing in India and across Asia is a slight hesitancy to upgrade, until we get further clarity from the Fed and the direction of earnings in the US.So, while we still like India, we haven't changed much of our stocks and remain committed to stocks, where we see strong visibility of earnings and strong company fundamentals coming through, in decent stocks like Bharti Airtel, BHEL, TCS, etc.

On a valuation basis, where would you peg this market at, given the kind of earnings it has reported?

I think we are still looking around the 13-14 times earnings on a P/E basis. With the recent results, it now looks as though India has got the highest earnings growth this year in the whole of Asia.

I also see that it has got the highest ROE. So, while the valuation differential has narrowed significantly vis-à-vis the rest of the region, the ROE and earnings growth is significantly superior to the rest of the region and as such that full valuation premium, I would say, is justified at this point.

Are investments into India going to be impacted crucially depending on what the Fed has to say?

We are currently slightly cautious on some of the interest rate sensitive stocks. I think there is pressure on Indian rates to move up further and that is being reflected in bond yields.

The risk potential for rates to move up further in India would have an impact on some of the auto names or some of the bank stocks, although expectation on the bank stocks seem to be quite low at this point. So, as far as the downside goes, that might be limited for now.

What about the midcaps that you may have in your portfolio, or may be tracking? What did you think of the earnings there and what about price expectations there?

I am afraid we don't focus much on the midcap market given that we have liquidity constraints.

But given the kind of earnings that you have seen and what you are projecting, what kind of Index range do you think valuations can support reasonably, even going forward?

Looking into the next year for stocks like BHEL - they are back from mid to high valuations but have come off upwards of 25 times and that gives us quite a big scope for re-rating.Given the slightly cautious tone that we have seen across global markets, I don't think we will go back straight to those kind of valuations in the next six months.

We will have to see a much more confirmed trend, along with comfort with what is happening in the consumer space before you see the market moving back up to those levels.

So, I think the growth in the market going forward is not necessarily going to be on a valuation re-rating basis, but on earnings and prices moving up together.

More Stories on : Interview | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Birla Sun Life MF unveils close-ended equity fund

SEBI norms for MF overseas investment

MFs asset base jumps 8.65%

Sugar prices, stocks surge on DGFT notification

Jet Airways: In rough weather

Lupin buoyed by expansion plans

Volatile movement

49 pc FII stake in SIB allowed

Temasek arm invests $3 m in Uma Precision

Downside limited in Indian markets: Martin Currie

Bears resurface to trim gains at close; auto stocks rev up