-------------------------------------------------------------------------------- As things stabilise over the next few weeks we should see flows beginning, initially at a slow pace and then gathering steam, over the second half of 2009. - SANDIP SABHARWAL, CIO, JM FINANCIAL ASSET MANAGEMENT
-------------------------------------------------------------------------------- Sandip Sabharwal, CIO, JM Financial Asset Management Aarati Krishnan Inflation is bound to fall and with it, interest rates. That will lead to earnings upgrades next year, says Mr Sandip Sabharwal, one of the longest standing equity fund managers in India, now Executive Director and Chief Investment Officer of JM Financial Asset Management. Excerpts from the interview: FIIs have been in the exit mode for the past eight months. How will the unfolding credit crisis, marked by so many failing institutions, change the picture on FII flows into India? Most equity funds in the developed as well as emerging markets have been facing redemptions from investors since the beginning of the year. The fear factor due to the financial crisis in the Western World, higher inflation and slowing growth have all contributed to this phenomenon. On top of this, specifically for a country like India, we have had a depreciating currency, which has lost nearly 15 per cent over the last six months. So despite the valuations being very attractive at this point of time, most foreign investors would like to see the depreciation of the currency slow down or reverse, before committing a large amount of capital. My guess is that, as things stabilise over the next few weeks we should see flows beginning, initially at a slow pace and then gathering steam, over the second half of 2009. How does the cooling off of commodity prices impact India Inc? Which sectors in your view, are key beneficiaries of this trend? In India, inflation, exclusive of food inflation, is largely an imported phenomenon as we import most of our requirements for many of the commodities. Domestic prices of most commodities are globally linked. With the severe correction in commodity prices over the last two to three months, inflation in India is likely to come down at a much more rapid pace than what most people expect. In our view, the key beneficiaries of this trend will be the interest rate sensitive sectors like financials and automobiles, as well as sectors like construction and capital goods. Do you think earnings downgrades made over the past six months by analysts capture the worst case scenario on company performance? Or is there more to come? Earnings have been downgraded substantially over the last few months and most people are now very realistic in their assumptions. Going forward, there may be sectoral upgrades or downgrades depending where each company stands, however I expect overall profit growth should still be at 15-20 per cent. With the cooling off of commodity prices and lower inflation, interest rates should also start coming down over the next six months. This will aid profit growth in 2009-10 and we are likely to begin seeing earnings upgrades for that year over the next six months. We still believe that the underlying growth trend of the Indian economy continues to be very strong. Do you go with the view that the RBI will begin to cut interest rates from next year? If so, which rate-sensitive sectors do you favour? We believe that inflation will start coming down very sharply next year and that will lead to interest rate cuts by the central bank. We are positive on interest rate-sensitives other than real estate, at this point of time. Do you favour holding large cash positions on your equity funds now, given the uncertainties surrounding liquidity flows, earnings and interest rates? We have typically been fully invested in all our equity funds. At this point of time, when valuations are at extremely low levels and the markets are in the process of forming a panic bottom, we do not think that keeping a large cash holding makes sense. However, this does not stop us from increasing cash levels when we are bearish on the markets. Do you think concerns about a slowdown in the domestic capex cycle are justified? What's your view on the prospects for infrastructure and capital goods companies in this context? At this time, the domestic capex cycle continues to be robust. However, if the tight monetary policy and the squeeze on liquidity continues for a prolonged period of time, it will make credit availability an issue and will also increase the breakeven IRRs (internal rate of returns) for various projects. As such, we believe that it is important for policymakers to take a dynamic call on liquidity and interest rates at a time of such high global uncertainty when even foreign capital is not freely available. Interest rates in India at this point of time are becoming highly restrictive and might impact the growth trajectory of the infrastructure and capital goods companies going forward. We will need to carefully monitor the situation. http://www.thehindubusinessline.com/iw/2008/10/05/stories/2008100550380700.htm Large desire is endless poverty. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
