Very Bullish on India’s Tech Sector, Smallcaps

Very Bullish on India's Tech Sector, SmallcapsGold Silver Reports — Very Bullish on India’s Tech Sector, Smallcaps — Will interest rates on bonds fall anytime soon? What will be the impact on corporate?

The bond market has opened and right now, bond rates in China are much lower than that in India. This means a wider distribution of bonds will begin to lower the bond rates in India which directly relates to what the price-earnings ratio of Indian equity should be. So, lower interest rates in India will drive higher valuations for corporates in India.

If you are at 16-17 times, how much PE expansion do you expect?

It could go up to 20-25 at that level in a relatively short period of time if all the numbers are in place and if GST (goods and services tax) implementation moves faster. At 20-25 times forward earnings, you are looking at a target on the Nifty between 10,000 and 13,000.Is that the kind of appetite that can fuel the markets higher from here?

Yes, I believe the Sensex and the other indices will move above the all-time highs.

Given the US FDA image transition -is pharma an opportunity for in vestors? What about technology?
Why are you holding conviction in technology space?

It probably is contrarian because the information technology sector has not been doing very well lately, but in longer term we believe they will continue to hold very dominant position globally and will expand that position. So going forward, we will continue to be invested in information, technology area. I believe the other area once GST is implemented and other reforms come into place, some of the hardware manufacturing will move into India. Right now India is not doing very much in that area but we believe that eventually this will happen and that will be very bullish for the technology sector generally in India.

You have been very big on small cap companies in India. The $1.2-billion Templeton Small Asian Companies Fund has outperformed the MSCI benchmark by a huge margin, the five-year return has been 47% versus 12% given by the MSCI benchmark. How did you become so big on the small-cap story in India?

Well first of all, in small-cap sector, you have a situation where good companies, companies that are growing have a much greater upside because they are starting from low base. So the percentages are in your favour when you are starting that low base.Secondly, a lot of these companies are exposed to sectors that we find very difficult to access in the largecap arena, particularly, the consumer arena. So, it is a wonderful opportunity and one of the reasons why the small-cap fund has done so well is because we have been pretty heavy in consumers. In addition, we are finding many new opportunities that have not been covered by the rest of the industry. By having analysts on the ground, we are able to uncover companies that are really special and can do tremendous things going forward and growth rates can be very-very high.

In Asian small companies fund the top allocation is India with a weightage of 27% versus 12% in the MSCI benchmark which is more than China, South Korea, Hong Kong. Is India your favourite market for small-cap companies?

That is the exciting thing about India because you got thousands of companies out there that have not been discovered by the regular investors and this is a wonderful area that we want to target. India is probably the most undiscovered small-cap arena anywhere in the world and that is the reason why we are putting more and more effort into that area.

Despite the risk profile, concerns about high prompter stake, you have faith in the quality of smallcap companies in India and small becoming big in the Indian market versus rest of the region in Asia?

Yes, it is very interesting because once you delve into some of these companies, many of them family controlled, you find that their integrity is very high. In fact, in some cases integrity of the smaller companies are better than the bigger ones because bigger companies have all kinds of other forces that they have to deal with. So, once you dig into some of these companies, it is quite gratifying to see how they are run and the fact that they are operating their businesses on a very high ethical level. — Neal Bhai Reports

Very Bullish on India’s Tech Sector, Smallcaps


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