Ajay Argal, head of Indian equities at Baring Asset Management, says there could be a cyclical upturn in the economy, particularly on the investments side, after the Indian elections and the formation of a new government.
India looks well-placed for an upturn
What asset class and geography are you are focused on?
My main focus is the equities market in India. Baring Asset Management is known for its expertise in emerging markets, and within this sector India is considered to be a particularly important market. We also advise on Indian investments for our regional and global emerging market teams.
What is the outlook for the month ahead?
After the results of the Indian elections and the formation of a new government, we expect that there could be a cyclical upturn in the economy, particularly on the investments side. This augurs well for the domestic cyclical stocks as we enter into the next year. From a longer-term perspective, the markets have recently scaled back the high of six years ago, whereas earnings have gone up by 60 to 70 per cent during that period. This gives us reason to believe that there is potential for the markets to go much higher over the next few years.
What are the main risks, either upside or downside, to the outlook?
To facilitate the growth of the Indian economy, we need to see additional private sector investments. The investment cycle has stalled in the country for the last couple of years, and if this trend continues the cyclical upturn we are expecting with the formation of a new government may take even longer than anticipated.
What is the best investment at the moment?
Although the markets have reached highs recently, the majority of stocks languish much below their peak levels. Most of these stocks are from domestic cyclical sectors such as financial, industrial, infrastructure and consumer discretionary. We believe that many stocks from these sectors are poised for above-average returns over next few quarters.
What was the best investment you were ever involved in?
We have endeavoured to focus on companies that have a strong competitive position, above-average growth rates with above-average return ratios and a strong balance sheet. We also tend to focus on companies that are not adequately recognised in their valuations. Over the past few quarters, many of our investment picks in the healthcare, consumer discretionary, financial, IT and industrial sectors have shown promising returns. The general theme of our success has been to focus on how we can differentiate ourselves from the consensus and what the catalysts are that could make consensus views converge with ours.
What was the worst?
The continuous changes that we have witnessed in the regulatory backdrop of the telecoms sector have made it particularly challenging to analyse the prospects for companies in these areas of the market, as the competitive environment has been strongly influenced by a series of changes. We prefer environments where company fundamentals have a chance to shine, rather than being overly influenced by regulatory or political events. We believe this is the environment that tends to reward investors in the longer term.
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