The markets have logged six consecutive sessions of gains. Punita Kumar-Sinha, senior managing director, Blackstone Asia, tells Krishna Merchant that valuations of Indian markets versus the rest of Asia have become more reasonable. Excerpts:
Are you still underweight on your Indian allocations in the Asian funds?
We have been underweight on India in our Asian allocations and that call has gone right, as India is one of the worst performing Asian markets this year. We were underweight because of concerns over inflation, rising interest rates, surge in the risk premium because of governance issues and high valuations. In addition, the spike in crude oil prices is a concern for India.
At present, we are evaluating our view on Indian markets versus the rest of Asia. It is highly likely that inflation will taper off in the second half due to the base effect, unless crude oil continues to spike up. Valuations of Indian markets versus the rest of the Asian markets have also become more reasonable and at this point if other factors improve we will increase our weightage on India.
Do you see fund flows coming back into India?
Yes, if you look at all the emerging market equities, 30 per cent of last year’s inflows have already gone out this year. Overseas investors are underweight on emerging markets versus their share of economic growth. Emerging economies make up 33 per cent of the global economy, where as equity holdings of emerging market equities for overseas investors are 10-15 per cent. In the short term, markets have corrected because they have gone up so much versus the developed world and investors were booking profits. As the long-term money would come back into the emerging markets, India would also be a beneficiary.
Given the market conditions, what sectors are you overweight and underweight on?
Over the last six months, we have increased allocation in information technology (IT), as it benefits from export-oriented global pickup. Pharma sector will benefit both from the domestic demand and number of drugs going off patent in the US. We have also remained overweight on financials and auto. We have remained underweight on real estate, infrastructure and utilities.
The government has set a disinvestment target of Rs 40,000 crore for 2011-12. Do you feel current market conditions and several issues getting postponed might impact this target?
I think the target is ambitious given the equity markets right now. The markets need to be more buoyant for the target to be achieved. It may happen in the second half, but at this moment it seems unrealistic.