Harshendu Bindal, President Franklin Templeton Asset Mgmt (India) believes that foreign investors are positive on India; while Prime Minister Narendra Modi is striking the right chords; concerns on issues like taxation remain.
In an interview with CNBC-TV18’s Shereen Bhan, he adds that one can expect India Inc’s earnings to grow in the range of 17-18 percent in the next three-four years, which will be key factor in attracting investors.
On sectors, Bindal is bullish on cyclicals, banking and materials.
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Below is the transcript of Harshendu Bindal’s interview with CNBC-TV18’s Shereen Bhan. For the complete interview watch the accompanying video
Q: The Prime Minister is making a sales pitch to investors both for FDI as well as FII in a sense but for are institutional investors telling you today? In the long term the India story intact but in the short term are we likely to see some pain?
A: One thing I have been realising over the past week or so that I have been here and speaking to a lot of institutional investors I think there is a lot of interest in India. However, the questions remain around the environment for taxation other issues around that or how easy or otherwise is it to come in to India. What the Prime Minister is saying, he is hitting all the right notes to our mind and the kind of issues that you talked about are exactly the kind of issues investors want to know about. If they can get that comfort, there is to my mind optimism, I think they are positive.
Q: Are they willing to pump in more money at these valuations?
A: If you look at valuations I think they are in the fair value territory. It is a question of now earnings growing from here. Our view on that is over the next three-four years you will see an earnings growth and in our estimate it is in the range of 17-18 percent. So, even if there is no rerating of the market, but the earnings growth will take it to a higher level. So, in that sense that needs to be communicated to investors and I think once they get that they will look at India.
Q: Which are the sectors that you are most excited about and most bullish on?
A: We are very structural when we look at our portfolios. So, we see for example cyclicals, banking, materials those are the kind of sectors we like to focus on vis-à-vis sectors like IT for example. So, we think those are some of the sectors that have a good story ahead of them and so we look at sectors like that in our funds right now.
Q: Do you anticipate a correction between 5 and 10 percent at this point in time before the market resumes its rally, that is the sense that we are getting, what is your own estimate?
A: We do not have a view on that because we are little more long-term in nature. So, we don’t really track that but I sense that that may happen. There will be little bit of volatility in the market not only for domestic reasons but for global reasons as well. So, we for the kind of volatility you talked about is may be quite practical and possible to look at. Having said that, with earnings start picking up we will come to a more stable environment and then the environment will change quite dramatically.
Q: What is the big global risk that you are factoring in?
A: Globally, we are looking at several things. We are looking at geopolitical risks. Besides that what we need to track is recovery in the US. I think people are getting a lot more positive in the US as well. If the recovery happens in the US the thing to look at is will they then invest in emerging markets going forward, to me that is one of the risks. I still think the way India is looking on a relative basis compared to some of the other emerging market countries we should be able to get better flows than some of them. But one always has to take a step back and look at what is happening globally. So, that may be one reason for flows not to be as strong as we would like.