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India's fundamentals stronger than other markets
September, 18th 2009

ET now caught up with Hugh Young, MD, Aberdeen AMC and asked him about the way forward for Indian markets from these levels 
and what the strategy of Aberdeen AMC is. Here is the transcript of the interview.

How are you watching the India story, particularly in the light of the run up that we have seen from the levels in March, do you think there are still value or is liquidity is likely to propel us higher regardless?

In a global context, the case for India remains extremely strong. Good companies, well run economy that has not made the mistakes of many of the western economies, so those are all very positive points, but, like stock markets worldwide, India has run very-very hard and fast and I would say in common with other stock markets, ahead of fundamentals. The good news about India is that the fundamentals specific to India are very healthy and better than most countries but at the moment, I am afraid we are seeing stock markets worldwide being listed by the same tide and some of them are rather vulnerable at these levels but the support for India is probably stronger than virtually every other major market in the world.

Given the kind of run up here, would you say there are sectors that you are looking at, at least are taking some profits off the table?

At the moment the types of investments we have made into India, we have got large holdings in financials such as HDFC, ICICI which have understandably run hard. Some of our consumer stocks, Unilevers of this world have not run particularly hard and they have lagged this market. To be honest with you, we are just sitting on at the moment and doing very little bit our investments where it is hard to be passionate about valuations in India at the moment but I am afraid that is true for virtually all stock markets in the world.

As a house Aberdeen has been a super bull on India, you have also invested in the past in companies like BPCL, Hero Honda, Infosys Technologies, in the IT space, what is your view?

As far as IT is concerned, we have got still good sized holdings in Infosys, TCS to name a couple and we are still very comfortable, it is not an easy industry and there are some headwinds again given the problems some of the international customers are facing. But, the balance sheets are strong, the valuation levels have come down to very attractive levels. So we are still sitting comfortably there.

On a 15% upside from current levels, what will you do, on a 15% downside from current levels, what will be your strategy?

And, of course markets could easily go either way in a very short order. As far as we are concerned our horizons are pretty long, so 15% or indeed 20% either way would not prompt us to do anything to our portfolios. We are comfortable with the companies we hold. We think over the next 5 to 10 years and the vision of most of the companies that we own and indeed many of the companies we own today we have held for 5 to 10 years, we are very-very comfortable. In many ways we are the worst people to ask about short term market movement, so we have grown so used to market, generating by 10 to 15% in a matter of days, that we do not frankly worry about it.

You were forced to exit Satyam Computers, you had a sizable holding there, in the new version of Mahindra Satyam, are you an investor?

We are not in Satyam, no, we exited Satyam when the whole basis were being invested in Satyam that disappeared overnight. We do not invest in companies where we were unable to make any judgement as to whether the figures are real or not.

As an FII what really are your targets going forward for the Indian markets?

We do not have any specific targets for any market to be honest, we think it would be very healthy if stock markets worldwide retraced some of their recent gains, but, at the moment, it is a matter of second guessing liquidity which frankly nobody is particularly good at. But, that does mean that investors should not be surprised by quite a substantial degree of volatility, but, as I say logic would dictate that the market should wait for earnings to catch up and for valuations to start looking reasonable again.

Have you participated in any of the QIPs or IPOs?

No we have not, we have seen a fair few capital raisings but compared to what is coming out of China at the moment which is a deluge, we have taken no issues in either market at the moment. We are generally a little sceptical.

Have you radically change your sector and allocation, I am curious to understand in last 1 month what have you added in your portfolio, what have you deleted from your India portfolio?

No, we have added and deleted absolutely nothing. So we are, I am afraid, a rather dull buy and hold investor which typically means we tend to under-perform hot momentum markets but conversely we typically are a fairly safe haven when markets get tough.

All the more reason for me to ask you that what are your long term favourites?

We do have quite a few of the Nifty 50, some of the smaller companies we quite like where some of the pharmaceuticals stocks like Aventis, some of the paint companies look quite interesting, to ask me have a couple of holdings amongst those, things like Asian Paints for example. Some of the smaller banks, the ING Vysya, Jammu and Kashmir are amongst are smaller holdings. Stocks like Infosys in the IT sector and there is quite a good choice, but, I am afraid even there nothing is screamingly cheap.

What is your position as far as Reliance Industries is concerned, in the near term we all know that there is a court judgment that is pending, but, given the fact that you have a longer term outlook, as far as RIL is concerned, what is the allocation in your portfolio and what is your longer term outlook for the company?

I mean at the moment and for time immemorial we have had no exposure to Reliance. We find it a little difficult to analyse. So it is quite a dramatic position vis--vis the benchmark.

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