India can gain from China's pain, but it's over-owned: Medha Samant, Fidelity

In a chat with ET Now, Medha Samant of Fidelity Worldwide Investment, says while China's troubles may have made India look relatively attractive, one cannot ignore the fact that India is the most over-owned trade. Excerpts:-

ET Now: First, a word on the Chinese PMI data. Clearly, it does not seem like the Chinese economy is out of the woods ?

Medha Samant: These are interesting times for China. The PMI has hit a six-year low. There are lot of concerns about what the macro data is telling us, but look at the ground in Asia, in Hong Kong, we are well aware of the fact that China is slowing down, but it is not a disaster. It is not exactly melting down.

Yes, we are talking about a new norm of growth -- may be 5 per cent to 6 per cent -- but it is still a very good environment for certain companies to grow in. The recent gyrations in the Chinese markets -- a sharp upturn and then a sharp downturn -- ensured that valuations of both Asia and importantly, the Hong Kong listed H-shares, have come off to very attractive levels now.

So we think from a valuation perspective, some of these firms are looking quite attractive. There are concerns due to what is happening globally, there will be volatility in the short term but there are opportunities from a bottom-up perspective in the long term.
ET Now: India has suddenly become a great macro story. Balance sheet concerns are over, macro worries are behind us; the conversation about India has moved beyond fiscal deficit and inflation. There is a lot of global liquidity. Do you think a lot of flows will automatically migrate back to Indian stocks?

Medha Samant: When we look at India today, it is really a relative out-performance trade. So, whenever we have seen uncertainty with respect to China, investors are playing a kind of barbell approach, almost like China’s pain being India’s gain. We have seen some of those flows from emerging markets, which flowed out of China, coming into India but at the same time one cannot ignore the fact that India is the most over-owned trade today.

So, there could be some concerns in the short term such as below-normal monsoons and that can have an impact on rural consumption. These kind of stories are slowly beginning to filter their way through.

In the short term, there will be volatility because of one or two local factors and some global uncertainty, but what is important for India is really for the central bank to make sure that investors are aware that it is on a monetary loosening path.

We want to see more interest rate cuts, we would like to see more reform-oriented announcements and it is really about the implementation of reforms and . That would really drive the India story.

ET Now: Next week, all eyes would be on Raghuram Rajan and what he chooses to do in his credit policy. What is your own sense of how much elbow room does RBI have to cut interest rates?

Medha Samant: The pause that the Fed has provided gives RBI room to go ahead with a rate cut. A 25 bps rate cut has been generally sort of accepted by all investors and all sort of fingers point to that, but the jury is still out there in terms of timing and in terms of the magnitude. We want to see more easing in terms of rate cuts, because it is really about next year where we need to see an earnings rebound. We do need to see more public investment.

ET Now: Do you think it is time to bid goodbye to some of the consumer and defensive names. The HUL, ITCs of the world are no longer market outperformers. Do you think it is time to move on?

Medha Samant: When you look at the consumer names from a regional perspective and include Indian names, then what stands out is that valuations are very expensive.

If you see a downturn in rural demand and consumption, you could see some margin impact. As a result of that, from our perspective in Fidelity, our fund managers are actually underweight on some of the consumer names where we think valuations have run up.
What we remain positive on is some of the private sector banks, we like some of the healthcare names, plays that are geared to infrastructure, but importantly only on those which are involved in disruption and innovation. We like firms that are true innovators, beneficiaries of disruptions. This could be in the media, telecom sectors.