India is well-placed among emerging markets in terms of valuations, according to Anthony Bolton, President-Investments, Fidelity International. Bolton managed the Fidelity Special Situations Fund, the best performing UK retail investment fund, from December 1979 to December 2007. He unveiled his recently-published book “Investing against Tide”, a guide on stock-picking strategies and managing money, in Mumbai today. In an interview with Business Standard, he speaks of his views on the global markets, India and investments. Excerpts:
How do you perceive the global markets now and what do you predict?
I think predicting the stock markets is not an easy task. Last year was pretty bad. But, there are some positives that seem to be emerging. Global inventories have started to stabilise. US manufacturing data is still in a negative zone, but, new orders are well off their lows. In US housing, which was at the heart of the economic crisis, prices are still descending, but on a lesser scale. I think, in the next few months, a lot more positive news will come.
American banks have passed the worst test and global equity price-to-book values are looking attractive. While people are calling it a bear market rally, I think it’s the beginning of a bull market. And this bull market is going to last for several years. There is so much cash on the sidelines. We will see another big move in markets when people feel left out and start deploying money. The global economy will bottom out in six to 12 months. On a longer term , one would be better off investing in emerging markets.
Which are the assets and sectors one should be investing in now?
I believe equities and high yield bonds look attractive in comparison to government securities. G-secs had their share in the rally. Going forward, they would not be able to perform as well as equities. Among sectors, consumer cyclicals will do better in the course of market recovery. Stocks that are exposed to consumers, when they get pessimistic or optimistic about the economy, will do well.
If you buy value stocks, they have outperformed all bull markets since 1930. If the financial sector was what led us to the crisis, it will also be the one to lead us out of it. The last bull markets had commodity and industrials as performing sectors, but we may not see that happening in the next bull market. I think finance stocks are among the cheapest and underowned ones currently.
What is your view on India?
India is not immune to what is happening in the world. Industrial production has fallen and fiscal deficit is rising. However, in India, government finances are stronger than in some other countries. We expect earnings to turn around. Pharma and oil & gas have the best turnaround potential. Relative to history, markets here are attractively valued. Among emerging markets, India is well-placed in terms of valuations and returns. Indian investors are much leass dependent on credit compared to the developed world.
You have been a succesful investor and investment manager. What are the philosophies you’ve followed?
I think understanding the business franchise is important. Keep hearing directly from the management of companies you have invested in. One needs to form an investment thesis as to why I invested in the stock. As Peter Lynch said, you should be able to explain convincingly to your teenage son why you chose to buy or sell a particular stock. Try to think two steps ahead of the crowd. I understand it is difficult but it could result in some of your best investments. Understand the balance sheet risk, how weak or strong that is. And, keep in mind that sentiment is as important as fundamentals.