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Cut defensives, add banks; mkt to rise 10% in 1 yr: Ashmore

Jan Dehn, Head-Research, Ashmore Investment Management is not perturbed by the intense sell-off in Indian equities. The Indian story is far from over, he tells CNBC-TV18 in an interview adding government spending, particularly in infrastucture, will make Indian equities attractive again. Indices can rise as much as 10 percent in 12 months on policy actions and if GST is implemented one can expect 24 percent return on investments within 2 years, he said.

While advising investors to continue accumulating on dips as the market is poised to go up, Dehn revealed he likes cyclicals and financials where he sees a lot of value. “See value in downstream oil companies and industrials as well,” he said while warning one to cut exposure to healthcare and defensives. He finds the government support to gas-fed power stations a big positive for the energy sector.

Below is the transcript of Jan Dehn’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: We have seen 8 percent correction from recent highs. Do you think it corrects even more, are you going to see a longish period of consolidation in Indian stocks?

A: I do not think this is a meaningful turning point and I do not think the positive India story is over. However, there was a nice run-up, valuations had moved up to level that were above long-term averages and given the more negative global outlook or global environment for stocks in particular, I think there is a bit of profit taking taking place here. I also think we have run out of catalyst to keep the Indian equity market rally going and people and earnings forecast have become a bit frothy relative to what we are going to see on the earnings front. We are still to see more government spending coming in infrastructure area, we are still seeing corporate being a little bit reticent about investing, they are basically refinancing but they are not refinancing for investment purposes, they are just refinancing their debt and we also had some detractors from consumer spending. Weather related effects, falls in some of the commodity prices like sugar and tea have also had a dampening effect on aggregate demand. Therefore, in a sense we are seeing an adjustment to these relatively short dated and relatively non structural factors and that is causing the correction.

The underlying story for Indian equities remains very strong. We are still in a goldilocks scenario, there are still reforms coming through, the government is making progress on a number of areas and this is going to sustain the India story and I do not think valuations are at level where there is no value in Indian stocks and finally the technical position in the Indian stock market is improving. Therefore, the way I would analyse this recent decline that we have seen in stocks is that it actually a very good opportunity to get the next bullet ready to fire into that market and to add into this dip.

Sonia: What would you be buying at this juncture if you had to incrementally increase your portfolio?

A: I am still very firmly of the belief that there is more cyclical upside in India. I like financials a lot. The drive to get more Indians to get bank accounts, the insurance reform and generally speaking the cyclical upturn in the economy amidst falling interest rates is an environment that is extremely good for financials and banks. Therefore, financials are banks are still an area where I see a lot of value because I believe in the cyclical story I also see value in industrials, I see value in downstream oil plays as well and on the other hand in some of the defensives, healthcare, in some of the staples. I do think that valuations are not attractive. So my favourite would be financials, industrials, downstream oil and I would be unwinding positions or have less exposure in healthcare and staples. 

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