ViJiT
Vijith Pujari
Portfolio Manager at Emerging Markets Management, Arindam Bhattacharjee believes that the earnings growth is likely to slow down. He adds that a correction may come by in Indian and Korean markets.
Portfolio Manager at Emerging Markets Management, Arindam Bhattacharjee says that earnings growth is likely to slow down and a correction may come by in Indian and Korean markets.
Emerging Markets Management has maintained an exposure to all RIL entities. They like HCL Tech and Concor and their latest buys include United Phosphorus, Astra Micro and BEML.
Excerpts from CNBC-TV18's exclusive interview with Arindam Bhattacharjee:
Q: How have you been reading the events of the last few days. There has been a bit of softness across the region in Asia ?
A: We will probably see a fairly tumultuous year. There has been a huge run up in markets, there is some uncertainty about oil prices being high, and earnings momentum slowing. So we expect some consolidation and volatility in the markets this year. So it is not totally surprising at this point.
Q: Will India and Korea have more than 40% blow out this year?
A: That will be great if they do, but it is unlikely. Probably it is great to see some correction in the markets. If they end up giving 5-10% positive returns, I would consider it a good year.
This is partly due to the reasons that we talked about which are; earning momentum slowing down, so we now have a very high base; five years of very strong earnings growth is slowing down. Interest rates have increased across the region and companies are also going into a little bit of investment phase. So we will see some impact on profitability.
What is hard to predict is the liquidity. There is a lot of money pouring into this region because people want that extra return from anywhere they can. So it is hard to say that it will continue to drive the markets. But with the 12-18 months scale we see some corrections.
Q: What is your sense of liquidity though in terms of the money that you were just talking about because you must be speaking to investors across Asia. Is India still an attractive destination?
A: Very much so, our client base is much more institutional and longer-term oriented. It goes back to the point that people are actually looking at the next five years and seeing where they can get some extra return. There are very few places in the world where we can say that the structural growth factors are very good, and I would say India is one of them where if we look at the next five years corporate earnings will still remain fairly strong. India has a number of companies that will become global multinationals. They are just Indian companies today with some exposure overseas, but they will be much more and much bigger in terms of the overall scheme.
Q: You have a new economy fund. Is that for the Indian market as well and are those the stories that you are tracking telecom, media ?
A: The New Economy Fund is a initiative, which is now about three years old. We took an initiative of investing in the global technology and the telecom space. It was all in the emerging markets, in telecom and technology stocks. A lot of it was to find niche ideas; like few telecom stocks in Africa, the Middle East, because we saw that after the technology bubble burst, there will be a lot of opportunities like good stocks and companies, very good cash flow generation trading at very low multiples.
So that is the initiative we took and we are seeing a fairly good performance in the last couple of years, there is a lot of growth and interest in that product. So that is growing significantly currently.
Q: What is the capital flow situation for emerging market funds such as yourself, are you seeing that level of interest sustaining this year as well. Do you see new money coming into your fund now?
A: Well, we closed the fund in the beginning year of 2004, so given the kind of growth we had seen prior to that, we reopened it in the middle of 2005, but it has been a measured growth. So we decide in terms of how much money we can really invest responsibly in the markets. We have seen a lot of interest and we still see a lot of interest from investors wanting to come into emerging markets.
A lot of them have not had much exposure in emerging markets and want to gain greater exposure. But from our perspective we tried to manage that growth because as any other company would do, we would also like to make sure that people stay over the longer-term.
Q: Without asking you for a view on the stock, did you own Reliance and how have you approached this whole transition as a fund?
A: We have owned Reliance Industries, for quite a while. It is a bit confusing to approach this transition and pricing. But our thought on Reliance is that, it is one of the companies that has the potential to become a global leader in its industry. I am sure that they have the ambition to do that. We have looked to the various parts of the business and we have said that as one entity, as a conglomerate it was undervalued. We saw some value vanish as the entity was broken up.
Now we are beginning to identify the individual merits of those and see which company is still undervalued, and which is not. Then we will make a choice whether to stay in it for some more time or actually exit couple of them, or just remain a core holder in one or two which we think are most attractive.
Q: At this point you remain invested in a whole pie or you have just taken a call to own the core business and then take it form there?
A: Well, at this point we do not have choice unless we have to be invested. But we have maintained our exposure in all of the demerged entities as of now and we are trying to decide which ones we want to keep or grow our exposure to and which ones to get out of.
Q: Do you still find spots or spaces which are undervalued in comparison to the market ?
A: There are some segments that if not undervalued, are much more reasonably valued than other parts of the market. For a long-term view, there are stocks where very good earnings growth prospects are there, but expectations are low. For example, I visit a couple of companies, like Container Corporation of India which is a play on long-term trade growth in India, and that is a fairly good structural growth story with high profitability, it is trading at good valuations. So we see some attraction there.
HCL Technologies is actually a stock, which we liked for a while, perhaps into controversy but its earnings growth story is likely to be fairly strong; since they have a very different strategy. But it has the scalability and again the expectations are low.
Q: What were last three stocks you bought?
A: We own United Phosphorous for a fairly long period of time, which has added to that position. We also own Bharat Earth Movers for a while and added more. We again added a small cap stock called Astra Microwave Products, which we own for 2 - 3 years. We see an opportunity as prices corrected.
Portfolio Manager at Emerging Markets Management, Arindam Bhattacharjee says that earnings growth is likely to slow down and a correction may come by in Indian and Korean markets.
Emerging Markets Management has maintained an exposure to all RIL entities. They like HCL Tech and Concor and their latest buys include United Phosphorus, Astra Micro and BEML.
Excerpts from CNBC-TV18's exclusive interview with Arindam Bhattacharjee:
Q: How have you been reading the events of the last few days. There has been a bit of softness across the region in Asia ?
A: We will probably see a fairly tumultuous year. There has been a huge run up in markets, there is some uncertainty about oil prices being high, and earnings momentum slowing. So we expect some consolidation and volatility in the markets this year. So it is not totally surprising at this point.
Q: Will India and Korea have more than 40% blow out this year?
A: That will be great if they do, but it is unlikely. Probably it is great to see some correction in the markets. If they end up giving 5-10% positive returns, I would consider it a good year.
This is partly due to the reasons that we talked about which are; earning momentum slowing down, so we now have a very high base; five years of very strong earnings growth is slowing down. Interest rates have increased across the region and companies are also going into a little bit of investment phase. So we will see some impact on profitability.
What is hard to predict is the liquidity. There is a lot of money pouring into this region because people want that extra return from anywhere they can. So it is hard to say that it will continue to drive the markets. But with the 12-18 months scale we see some corrections.
Q: What is your sense of liquidity though in terms of the money that you were just talking about because you must be speaking to investors across Asia. Is India still an attractive destination?
A: Very much so, our client base is much more institutional and longer-term oriented. It goes back to the point that people are actually looking at the next five years and seeing where they can get some extra return. There are very few places in the world where we can say that the structural growth factors are very good, and I would say India is one of them where if we look at the next five years corporate earnings will still remain fairly strong. India has a number of companies that will become global multinationals. They are just Indian companies today with some exposure overseas, but they will be much more and much bigger in terms of the overall scheme.
Q: You have a new economy fund. Is that for the Indian market as well and are those the stories that you are tracking telecom, media ?
A: The New Economy Fund is a initiative, which is now about three years old. We took an initiative of investing in the global technology and the telecom space. It was all in the emerging markets, in telecom and technology stocks. A lot of it was to find niche ideas; like few telecom stocks in Africa, the Middle East, because we saw that after the technology bubble burst, there will be a lot of opportunities like good stocks and companies, very good cash flow generation trading at very low multiples.
So that is the initiative we took and we are seeing a fairly good performance in the last couple of years, there is a lot of growth and interest in that product. So that is growing significantly currently.
Q: What is the capital flow situation for emerging market funds such as yourself, are you seeing that level of interest sustaining this year as well. Do you see new money coming into your fund now?
A: Well, we closed the fund in the beginning year of 2004, so given the kind of growth we had seen prior to that, we reopened it in the middle of 2005, but it has been a measured growth. So we decide in terms of how much money we can really invest responsibly in the markets. We have seen a lot of interest and we still see a lot of interest from investors wanting to come into emerging markets.
A lot of them have not had much exposure in emerging markets and want to gain greater exposure. But from our perspective we tried to manage that growth because as any other company would do, we would also like to make sure that people stay over the longer-term.
Q: Without asking you for a view on the stock, did you own Reliance and how have you approached this whole transition as a fund?
A: We have owned Reliance Industries, for quite a while. It is a bit confusing to approach this transition and pricing. But our thought on Reliance is that, it is one of the companies that has the potential to become a global leader in its industry. I am sure that they have the ambition to do that. We have looked to the various parts of the business and we have said that as one entity, as a conglomerate it was undervalued. We saw some value vanish as the entity was broken up.
Now we are beginning to identify the individual merits of those and see which company is still undervalued, and which is not. Then we will make a choice whether to stay in it for some more time or actually exit couple of them, or just remain a core holder in one or two which we think are most attractive.
Q: At this point you remain invested in a whole pie or you have just taken a call to own the core business and then take it form there?
A: Well, at this point we do not have choice unless we have to be invested. But we have maintained our exposure in all of the demerged entities as of now and we are trying to decide which ones we want to keep or grow our exposure to and which ones to get out of.
Q: Do you still find spots or spaces which are undervalued in comparison to the market ?
A: There are some segments that if not undervalued, are much more reasonably valued than other parts of the market. For a long-term view, there are stocks where very good earnings growth prospects are there, but expectations are low. For example, I visit a couple of companies, like Container Corporation of India which is a play on long-term trade growth in India, and that is a fairly good structural growth story with high profitability, it is trading at good valuations. So we see some attraction there.
HCL Technologies is actually a stock, which we liked for a while, perhaps into controversy but its earnings growth story is likely to be fairly strong; since they have a very different strategy. But it has the scalability and again the expectations are low.
Q: What were last three stocks you bought?
A: We own United Phosphorous for a fairly long period of time, which has added to that position. We also own Bharat Earth Movers for a while and added more. We again added a small cap stock called Astra Microwave Products, which we own for 2 - 3 years. We see an opportunity as prices corrected.