Adrian Lim of Aberdeen Asset Management believes that Indian markets are due for a pause, and that profit taking is likely in Q3. He further adds that there have not been many negative surprises in Q2 nos. Lim feels that FIIs may take some money out at current levels.
Lim also informs that they have booked some profits in Hero Honda. He says that they are still overweight on India, and may add another 1-2 per cent points. He states that they have booked profits in India during the current run-up, but they are still positive on India.
Excerpts of CNBC-TV18's exclusive interview with Adrian Lim:
We had a dash to 13,000 back to new highs and we have given up some of those gains. How are you feeling now?
If one looks at the year, it had been fantastic in Q1, and then, it had been pretty volatile in the next two quarters. I think Indian markets are due for catching some breadth. We have seen quite a bit of outflows or profit taking in Q2 and we continue to see that a bit in Q3.
It is not material but it is 4-5 per cent cumulatively of the assets that we manage in the Indian asset class. So I think the long-term story is still intact. But during times of exuberance like this, there will be some profit taking.
Can you quantify that? Are there other funds as well, which are seeing a little bit of profit taking? Is it just that or is it the fact that the market has run too hard, people are taking some money off the table or is there more to it?
I think Indian stock markets have gone through a tremendous period of expansion and tremendous bull run. I think it is sensible to expect these levels of profit taking. We have seen net inflows for the full year but over the last quarter or so, it's been quite stable.
So, by and large, foreign investors or international investors are still net buyers in India. It is just that at these price levels, some will want to take some money out off the table first, and then wait to see whether there would be any surprise point where they feel more comfortable in getting up the Indian weights again.
What about earnings though? Last quarter was a pleasant surprise for a lot of investors. This quarter, from what you have seen so far, are you feeling pretty confident or have there been any jolts for you?
No, I think there hasn't been any surprises; at least not among the leading lights in the capital market that we have seen. Most of the stocks that we watch quite closely have continued to outperform. One has seen the levels of growth coming from both volume expansions as well as pricing power. So it has been quite stable.
If one looks through that to the capacity announcements and capacity expansion among Indian corporates, most management teams are still positive going forward. They are willing to take on a bit more funding and build out some of their capacity. So the prospect for growth is still strong. We didn't see many surprises or negative surprise within the last quarter's numbers.
You hold Hero Honda in your fund. Do you have any concerns on what the two-wheelers have delivered this time round, and would you reduce weightage on it?
Hero Honda has been a difficult one and it has been cyclical. I think over the years, you have seen Bajaj and Hero Honda continue to compete very effectively to the advantage of the consumers. I think the two-wheeler market will continue to expand at a strong rate.
I mean the fundamentals are very clear - greater earnings power, greater disposable income, easier access to debt and more affordable funding. I think the story for growth in the two-wheeler market is a sustained one.
Over the short-term from QoQ basis, you will see some blips and the blips that you do see in the two-wheeler market currently are not something to be concerned about. We did take some profits off the table from our holdings in Hero Honda. But we still have a chunky weight in the stock.
A lot of other investors have been telling us as well that while some of them have taken profits off, some have churned their portfolio against stocks, which have run up too much and in favour of sectors, which have not quite participated in this heady run. Have you, at Aberdeen, done any such thing?
It has been quite difficult to match the exuberance. We do not tend to trade our stocks very much. So we have not churned the portfolio the way we have seen some of our peers doing. We typically hold on to a stock for 3-5 years. So the churn on the average should be about 20-25 per cent of the value each year. We have not changed our style or our approach to this market.
Any new midcaps which you may have included from the India basket?
No, our favorites have been the stocks that we have held for a long time. We continue to top out on some on these stocks. In terms of looking out for the midcaps, it is always tempting to look at the next best idea. But sometimes the best ideas are the ones you currently sit on.
We've been keeping our faith with the call holdings that we have. It is an interesting time, you see a lot of real estate ideas, infrastructure ideas and textile ideas. One sees a lot of interesting kind of business models coming through. But we've not consummated any deals. We have not initiated any positions in our India funds, so far.
What's your view on interest rates out here. As a fund, what kind of view do you have on the banking sector?
Our banking view has been a very resilient and a pretty positive one. It is usually our largest or the second largest. At the moment, it is our second largest sector that we hold in the Indian fund. We think that it is independent of the interest rates though.
One sees that debt or consumption of banking and financial products will continue to expand. It is not just straight lending, it is not just mortgages anymore, it is insurance products, asset management products, pension management, and treasury. One sees that the Indian market is getting a lot more sophisticated than it used to be.
This means that independent of where the interest rates are going, the financial institutions are relatively well managed. I believe one will continue to see earnings growth independent of where interest rates are going. We do see some signs of the interest rates pressure going up, will be capped a little bit. But it is still too early to draw a trend.
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