Hans Goetti, Director of Citigroup Private Bank believes that valuations have taken a backseat in Indian markets for now. Goetti informs that Citigroup is slightly underweight on India, Hong Kong, Singapore, Malaysia and Korea.
Goetti further adds that they would go overweight on Asia if commodity prices fall. He also says that Citigroup likes IT, capital goods, media and telecom stocks In India. He is looking at 22 per cent earnings growth for FY07.
Excerpts from CNBC-TV18's exclusive interview with Hans Goetti:
Markets are at an all-time high in India, what is your sense now on this market?
It looks very strong. The Indian market is obviously supported by very strong fundamentals. We are looking at 8.3 per cent GDP growth for this fiscal year, 22 per cent earnings growth for this year and long-term earnings growth rate of about 15 per cent. So at the moment, valuations are taking a backseat. Growth momentum is clearly center stage and on top of it, oil prices, which help, of course.
Given these kind of economic and corporate numbers, do you sense any kind of ownership scramble now, of people who might have been waiting for a dip in India, which has not come through?
Well, the foreign inflows have remained quite steady in India. If one looks across Asia, India and China have been the biggest beneficiaries of foreign inflows. I think in India, where the free flows of total market capitalization is relatively low, if there is a lot of foreign buying, it pushes up valuation. As I said, it is more a growth momentum story, than anything else.
What is your call on India as a market - are you overweight or neutral?
In a portfolio context, we are not overweight on India. We are basically slightly underweight even at these levels. In Asia, we are underweight in Hong Kong, Singapore, Malaysia and Korea for various reasons. For us, India remains a domestic story, whereas some other stories maybe export-oriented. But we find certain sectors in India attractive and that's where we put our money.
Are you also hearing of money being pulled out from other markets and invested into ours or even fresh money being raised now ?
I don't think there is a shift from other markets in Asia. This Indian growth story is something that is self-sustainable, where global investors are recognizing the potential and putting money into India. We do not really see a shift from other Asian markets into India at this point.
Are you happy with the earnings that you've seen so far, IT particularly?
Absolutely, earnings have come through. And as I said, earnings expectations for this year is high. In fact, our numbers have probably been on the conservative side. When we talk about sectors, we like IT, capital goods, media and telecom.
Q: Have you pared your position or your exposure on any sector that you are concerned about, in terms of earnings?
No, not really. I think as long as one sticks to largecaps with high visible earnings growth and high dividends, I don't think, one has to tweak that much. We believe in the Indian long-term story and that's how we are positioned.
By the end of the year, do you expect to see a deep correction in this market at all or do you think it is still very strong on momentum?
It's always a bit difficult to make year-end forecasts, which is point-to-point. At the moment, it is clearly the momentum. We see it in global markets, we think that the US markets will go higher, as a result. It will have a spill-over effect into the rest of the world. As long as liquidity is in abundance, we see little reason for a pullback.
The only issue that we could see is that if sentiment gets euphoric, which we don't see yet, at least not in the United States, then we could have a pullback, maybe sometime in the first quarter of next year but I think for the rest of the year, we remain bullish.
Generally, what is the mood on emerging markets now, as you go into the last quarter of this calendar? Do you find it in place or are people getting a little apprehensive after the good run up that has happened?
We have to look at this against the backdrop of commodity prices. If one manages emerging markets portfolio globally, the tendency was to overweight Latin America and Eastern Europe during times of high commodity prices because those economies are beneficiaries.
Now we have a reversal, we have lower commodity prices and lower oil prices. Within an emerging markets context, one would have to start to overweight Asia, which so far has been underweight. And that of course, benefits certain countries more than others.
We think the prime beneficiaries of these shifts should be China, Korea and Taiwan because they have a lot of imports of commodities. They get the relief there and Asia, in general, will probably be overweight. This probably explains a little bit the good performance that we have had over the last few months.
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