What is the asset class and geography you are focused on?
Indian equities.
What is the outlook for the month ahead?
The euro-zone crisis will dictate credit flows. But India's got its own subset of credit problems … 2014 is an election year, so we'll have enough domestic political turmoil that we're struggling with ourselves. The current account deficit is at its worst ever, the fiscal deficit is at its worst ever. Domestic problems will weigh for the next one month, definitely. The focus of attention will for some time be outside. From an Indian context, Indian companies will manage the international quantity. The domestic quantity has a lot to do with policy issues, which is something like a black box. Regarding the external environment, I think we'll get there.
What are the main risks (upside or downside) to the outlook?
You've got an environment which is coming off its highest growth level. Corporates will be deleveraging balance sheets and cutting down on growth expectations. [Corporate] mortality risk will shrink in this environment and gives space to build portfolios which will build into the next decade.
What is the best investment at the moment?
This is a consolidation phase. We should begin our next investment cycle once balance sheets are in a healthier state. Capital is already expensive. The mortality rate of companies is extremely high. Companies borrow at between 11 to 13 per cent in India. The bottom end of corporate industry is actually shrinking. The big will get larger, the more efficient will get higher market share. From a portfolio point of view, we like businesses in this cycle which are cash-flow positive and are consolidating market share. Within those two parameters we get opportunities in virtually every sector. The consumer part of the economy is huge, with 1.2 billion people … 27 per cent of the population coming into the workforce in the next three years, and it's a very aspirational environment. There are very few companies who actually address that entire space and that's a very large opportunity there.
From a corporate balance sheet point of view, it's very clean. The problem with consumer [stocks] is they're very expensively priced. It's not a value market, it's a growth market. The second environment is the cyclical environment. When GDP growth slows from 9 per cent to 5 per cent, that's what's happened over the last year or so, you have a huge slowdown in the financial sector and a lot of risk aversion that's coming in. The financial sector and infrastructure companies [are] where the value plays come in.
What was the best investment you were involved in?
At the IDFC Asset Management business we got out of the investment cycle in time and got into the customer cycle in time. We've been able to capture the migration from an investment-led economy to a consumer economy.
And the worst?
We got back into the investment cycle in 2011 in the infrastructure fund. That product was fairly mistimed … We were the last [to enter the market], but still early.
