Pradhan believes that the new government has delivered beyond most expectations.
Fed policy, Brexit, China chatter and the U.S. Presidential poll have of late started causing discomfort to markets worldwide. Many have called Indian economy the lone star in an otherwise sea of despair, while others agree to disagree. Tushar Pradhan, chief investment officer of the ₹7200 crore+ HSBC Mutual Fund, reveals that India continues to trade at premium valuations over the other emerging markets. For those swayed by temporary events, the fund manager in an interview with Kumar Shankar Roy, has some sage advice: The best time to know if it was a bull market is after it is over!
India's decision to amend a few key clauses in the 3 decades old Double Taxation Avoidance Agreement (DTAA) it had signed with Mauritius has been grabbing headlines. The amendments will now allow India to tax capital gains earned by Mauritius based entities. These entities will now have to pay capital gains tax for investments in India made from April 1, 2017. So, how does it change life?
I think this legislation is in line with a trend seen emerging globally and one that the authorities had already talked about. In my opinion there is no case for this to change life dramatically. In fact, this will be a level playing field for foreign investors from jurisdictions that were already paying capital gains taxes. The move actually levels the field rather than anything else.
The new government has completed two years at the helm. Has their performance matched expectations of a large equity investor like you? What are the misses that you would want them to cover up in the next three years?
Given the enormous challenge of running a complex economy such as India I would think that government has delivered beyond most expectations. The impact is always going to be slow to be seen on the ground, however that is no reason to fault the effort.
At an index level, not much has changed for stock markets. At a time when global growth has petered out, India by virtue of its inherent properties has become the fastest growing major economy. Have the stock markets discounted this relative faster growth? I say this because the premium enjoyed by the Indian market over foreign markets seems to be on the wane....
India continues to trade at premium valuations over the other emerging markets and the reason I think has always been a delivery of superior ROE. As we see a turnaround in operating leverage, I expect the ROEs to sustain their edge and the premium to continue.
Are we already in the next bull market or some time away from one?
Markets are inherently unpredictable. The best time to know if it was a bull market is after it is over!
Some find valuations of the Indian market full with the Nifty-50 trading at 18 times FY2017E 'EPS' and 15 times FY2018E 'EPS'. Some parts of the market (cement, consumer staples, industrials and media) are very expensive even on FY2018E EPS. Which are the sectors where you see value in this market and why?
At the moment our equity fund managers favor consumer discretionary, financials, select industrials and autos to a certain extent. While there is no obvious cheapness or value in an absolute sense, incorporating an improving outlook on revenues, reduced burden on interest rates and strong consumer demand, the market appears attractive on a relative basis vis-a-vis its expected earnings growth over the next 2 years. The risk to this scenarios is that the earnings are not delivered or are delayed.
How has your exposure to telecoms affected performance?
We have remained underweight in telecoms across all our strategies. There are many other reasons for the out-performance over the recent period.