Stock Market

Interest in India higher than it has been in a long time: Karma

The trend in emerging markets in general and India in particular has been on the up and more long-term flows are expected to come in over the next few years, says Nandita Parker of Karma Capital.

In an interview with CNBC-TV18, Parker said the Indian economy was in the midst of a broad-based revival and that the government’s reform drive had picked up pace, and this bodes well for prospects of shares.

She also discussed her views on various sectors, such as telecom and cement.

Below is the transcript of Nandita Parker’s interview to Sonia Shenoy, Latha Venkatesh and Anuj Singhal on CNBC-TV18.

Sonia: It has been a roaring bull market for India at least along with a whole host of other emerging markets (EM) as well. Do you see this positive trend continue?

A: I think we are at the start of a long-term trend for EMs and particularly for India. A number of factors have come together this year. The government has embarked on a much more frantic pace of a big ticket or big bang reforms and if Aadhar was a game changer for the financial services sector, then goods and services tax (GST) certainly is a game changer for the manufacturing sector and a host of connected sectors including logistics and so on and so forth.

In addition, we have had a very good monsoon. The effects of this are still to play out in the economy. We have low interest rates in India and negative interest rates in large parts of Europe and Japan. Against the backdrop of this, we have an economy which is growing faster than most in the world and which is probably the only economy which can accelerate to even 9 percent at least in the next two years.

So all-in-all, I am seeing interest in India is the highest it has been in a long time and it is also coming from a different kind of investor, a much more long-term sticky money, the pension fund guys. And if India gets its act together on two fronts, one is on taxation and secondly, on dismantling some of the red tape and bureaucracy that this trend will sustain for many years, not just five years.

Anuj: That is, of course, a slightly longer term call, but we have seen a low of foreign institutional investor (FII) inflows all through this year. Last month in particular was really big. Is most of this exchange traded fund ( ETF ) driven hot money or do you think a lot of long-only funds are also participating in this market?

A: I think it is a mix right now, but it is early. The big, like I said, long-term sticky money is yet to flow in, in a substantial way. And when you say last month was big, I have been doing this for a long time and I do not think it was that big relative to how big it has been in past cycles. So year-to-date, let us say net FII inflow is about USD 5 odd billion and I have seen years where it has been USD 15-17 billion. So, this market will absorb better now. There is a larger number of investable largecaps, midcaps and smallcaps. The recovery seems to be much more broad-based now.

If you look at the last earnings season, the percentage of beats versus misses is healthy as we have seen it in several years. And not only that, but it is coming from a host of sectors where we had not seen that kind of vibrancy whether it is materials and industrials and so on. So, the broad-basing of it means that there is more room for rerating in sectors which have seen an earnings growth. In sectors where investors were already positive, we will see a waiting game, so let us see where the growth comes in, that sort of thing. So, I think the market is well supported and I think the flows will come in.

Latha: At the moment therefore, how would you approach the telecom space?

A: We have been negative for telecom for as long as I remember. It has been several years and although it is a great sector for the consumer and what it has done in terms of providing internet access for the financial services industry, it is really a terrible place to invest. So, we are not doing anything.

Latha: I wanted to ask you as well about general evaluations. While one accepts that after three or four years of practically static earnings growth, we are in the throws of maybe a double digit earnings growth this year. But is that not priced in is what every investor is asking. Your call?

A: You are absolutely right. In certain segments, it is definitely priced in and there are pockets of overvaluation as well. And what might happen in that case is that you might have a time correction because investors will clearly not want to miss out on the new opportunities that are coming in. At the same time, they do not want to miss out on the new opportunities that are coming in. At the same time, they do not want to let go of what have been their winners. And that is the psychology of the fund manager. So, that will happen.

In addition, I also think there is going to be a shift into the under owned cyclicals whether it is industrials, construction, basic materials or all of that because order books are filling up and we know that the government is very serious on the infrastructure spend front, at least in the transportation sector and power sector, there is a lot happening, oil and gas, there is a lot happening. So, I hope that answers your question.

More to come.