Mumbai: Alok Sama, chairman of Dubai-based investment firm Baer Capital Partners Ltd, said in an interview that India will continue to outperform other emerging markets. Edited excerpts:
What is the primary risk to the markets even in the near term?
If you are talking about global markets generally—we worry about and the world worries about sovereign debt problems. Printing money, never good news; rising interest rates is not good news. That’s something we worry about a lot over medium term. We also worry about the (US) Fed’s exit policy because so much of what you are seeing around is liquidity driven and 0% interest rates. I have always said this over the last year, people underestimate how powerful 0% interest rate can be in terms of driving risk appetite. There’s only so long people can keep money under mattresses.
Risk appetite: Baer Capital Partners chairman Alok Sama.
Once that starts to go away, that’ll have an impact on risk appetite across the board. In India, we are concerned that the Reserve Bank of India (RBI) has been inflation fighting, have always been weary of inflation, and we think monetary tightening in India is going to be a real concern. Given all of that, in our portfolio, we are positioned the most defensively, certainly relative to where we have been over the last 15 months or so.
Would we continue to receive strong foreign institutional investor (FII) flows?
From a relative perspective, India, in terms of how it is perceived by the world and by FIIs, I actually don’t think it has ever been this positive but in a relative sense. When you have bubbles along the lines which you had in 1999 globally or even 2007, risk appetite was at unprecedented levels, but in a relative sense people do see India as a bit of safe haven, even relative to China. What India has going for it is a story that is strongly rooted in domestic demand. This is not a story that is export-oriented. You have a banking system that is rock solid.
Of course, now for first time in many years, you have political stability and a government that inspires confidence in investors in terms of implementing in a gradual fashion, implementing reforms.
The Indian story is very much bottoms-up as opposed to top-down resource allocation, domestic demand. Rural demand in India continues to be very strong. I think a lot of investors recognized it that it seems to be a much more sustainable story.
There is some discomfort over valuations of Indian stocks. What’s your stand on this?
I think valuations, relative to other emerging markets, India is certainly at a hefty premium, but I actually think deservedly so. I am less concerned about valuation than I am about global risk appetite and how that’s going to affect India. The easy money in terms of emerging markets being favoured, hot money—not just hot money, even solid long-term money flowing into India—all of that is behind us. I think India will continue to outperform. However, we are concerned about risk appetite being temperamental, reversing itself, and we are quite wary.
The other issue of lots of divestment and lots of primary market paper hitting the market, especially from the government’s stable. Is there anything you are looking at or are interested in?
I personally don’t get involved in looking at individual stock investment decisions. But SAIL (Steel Authority of India Ltd) is a good example. One of the themes that we believe in strongly is infrastructure spending in India and the SAIL story is a good one. Those are certainly companies we would look at; valuation is the key from our perspective. Anything that involves consumer spending, infrastructure, those are themes we believe in quite strongly.
Could Indian stocks hit a new high this year?
I think it could. We’ve been fairly defensive, and as a result, we have underperformed in last few weeks. It could, but it is driven by liquidity. We really do see it as being a choppy sideways range-bound market. It is all about making sensible bets in terms of sectors as well as individual stocks.