The Budget announcements have revived market sentiment. Do you think the worst is behind?
The Budget’s focus was on rural sector. A fat part of $289 billion in projected spending will go into rural infrastructure, agriculture and social programmes. More will be doled out through direct benefit transfers that will, for example, help farmers buy fertiliser. In view of India’s dire transport bottlenecks, spending on roads and railways also remains a priority. Some artful shifting of planned capital expenditure to so-called public sector undertakings will keep down headline costs.
We have witnessed strong foreign fund flows in March. Do you think this is sustainable?
Overall, the sheen has come off India’s growth story a little, as slowing global trade catches up with it. Earnings growth has been stalling, although there have been signs of resilience among individual companies. That said foreign direct investment remains healthy while competitive federalism — the devolution of economic resource allocation and decision-making to the states — is producing results, especially in areas like ease of doing business. We still like India from both a fixed income and equity market perspective and remain overweight versus benchmarks.
D Street is anticipating an interest rate cut in the forthcoming RBI monetary policy meet. What are your expectations?
The finance minister has to balance the needs of spending to support growth and reform, while reassuring investors that the government remains committed to deficit goals. So spending is up, but still in check. This is positive for fixed income markets as it keeps hopes of interest rate cuts on course. We expect another 25 basis point cut when the central bank next meets in April, although a move could come even sooner.
What’s your outlook on the banking sector?
We own the likes of HDFC Bank, ICICI Bank and Kotak Mahindra Bank, all of which remain well-capitalised for recovery and with a much better bad loan profile than the public sector banks. These lenders will look even better if Reserve Bank of India governor Raghuram Rajan can impose more conservative accounting on the sector. Meanwhile, there was a boost to institutional reforms, although there was no word on the actual mechanics of debt recovery, insolvency and bankruptcy.
Do you think cyclical stocks can be the dark horse?
We are hopeful that government spending on public works will help our holdings in cement and capital goods-makers. This may depend on the quality of project execution. We own ABB, the power and automation multinational. UltraTech and Ambuja Cement, which are also in our portfolios, got an additional boost by way of an abolition of excise duty on ready-mix-concrete.
ITC stock has been one of the biggest market outperformers post Budget. What is your stance on ITC?
We own ITC, the leading cigarettemaker. Some aspects of the Budget’s small print were encouraging. Tariff hikes on tobacco were up ‘only’ 10.3%, a few percentage points ahead of inflation and within consumer tolerance. Overzealous hikes in the past have typically just pushed smokers to buy non-branded cigarettes, defeating the intention of raising revenues.
Some FIIs have become vocal about the government’s reform agenda. What’s your stand?
There was no trimming of corporate tax and silence on GST — a pillar of Modi’s reform agenda and critical if the government is to diversify and boost revenues. With the Opposition having stalled such reforms and state elections coming soon, it’s a disappointment but not a huge surprise.
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We continue to remain overweight on India: Adrian Lim, Aberdeen Asset Management have 727 words, post on economictimes.indiatimes.com at March 15, 2016. This is cached page on Asia News. If you want remove this page, please contact us.