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Pick quality midcap, smallcaps; shun public banks: TCW Grp

Rohit Sah, fund manager – International Equities, TCW Group is confident on Indian economy after the Narendra Modi-led government came into power on May 16.

According to him, India has all positives to grow at 12 percent in dollar terms but desperately needs economic reforms to boost growth.

In CNBC-TV18’s special series ‘The New Yorkers’ Sah says the midcaps and smallcaps in India are driven by domestic economy and it is wise to focus on quality stocks in both these packs. The tailwinds, right now, are supporting the domestic economy and there is no need to worry about the valuations, adds Sah.

“Quality of management, financial returns is more important than valuations”, he feels.

Among specific sectors, Sah is overweight on financials and holds nearly 29 percent in the same with  REC being the top holding company. He believes high growth is possible with right reforms and capital markets and financials are likely to benefit from this growth.

He, however, is bearish on PSU banks and recommends staying away with a longer-term perspective.

Below is verbatim transcript of the interview:

Q: You have pointed out to India as one of the likely candidates as an Anglo-Saxon economy. Why are you confident that India of all countries will be an Anglo-Saxon economy?

A: An Anglo-Saxon economy is characterised by low government spending. It generally has an open current account, secured property rights and a stock market and capital markets which are geared towards growth.

If you look at successful economies in the past 100 years, like the US, UK, Australia, Canada and Hong Kong, if you tick the boxes, India today is not an Anglo-Saxon economy. In 1947 it was but today we have a long way to go before we get to being an Anglo-Saxon economy.

However, this election of 2014 has provided a political mandate to move away from the Fabian socialism that has been practiced for the last 60 plus years in India. So, I am hopeful.

The political mandate is there. You have a prime minister who has demonstrated his ability to execute such an economy in the state of Gujarat and so we can only hope for the best after that.


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