Transcription of the interview
2012 has presented a mixed bag for the Indian economy and the market so far. On the one hand, we have seen the problem of sequentially slowing economy and that continues to cause concern. Also the inflation remains stubbornly high even though there are early signs that it may be in the process of dropping out and rolling over. On the other hand we have seen seven cyclical indicators turn favourable on a forward-looking basis. Particularly the drop in oil and commodity prices augurs well for a cyclical recovery in the Indian economy. Amidst all this there is the issue of Indian politics which continues to be a wild card. What we believe in the space is that the government deficit that has plagued developments in India over the last 12 to 18 months may be coming to a closure now, and at the margin we may see some positive development. 2013/14 is an election year in India and the government has a window of a few months to act. The slowing economy has caused quite a bit of domestic discontent and agencies like Standard & Poor’s have threatened a sovereign downgrade. All this may force the government to act on some policy issues very soon. On balance therefore we're looking at India as a picture of a glass being half full rather than half empty. Valuations continue to be reasonable and the most positive development this year so far has been that the market has taken a lot of negatives in its stride and has continued to hold up reasonably well against a host of bad news locally and globally.
DNB India
DNB India has so far had a fairly satisfactory year in 2012. The fund returns have hovered in the mid-teens until to date, and the fund continues to perform well in relation to the benchmark so far. Our bottom-up stock picks have contributed very well to the fund's performance. Three out of the top five bottom-up holdings have done very well this year so far, with the top holding a healthcare name up over 60% year to date. On the sectoral positions our stock picks in financials have done extremely well. On the sectoral weight, the financials continue to be a sector which carries maximum weight in the benchmark and we have a close to neutral position here even though we have concentrated holdings in some other high-quality banks in the space. Amongst the other sectors we have a reasonable representation in healthcare and IT services which are export driven sectors. We continue to be massively underweight in global cyclicals and continue to have a bias toward domestic consumption related sectors. Our exposure to the bottom-up stock picks represented by stocks outside the benchmark continued to be higher than 50% for most of the year. This represents an increase over the position last year and gives an idea of the level of confidence we have in the market on a forward-looking basis this year.
DNB Asian Small Cap
2012 has so far proved a fairly challenging and volatile year for Asian stocks particularly on the small and mid-cap side and more so for Chinese and Indian small and mid-caps. Both the Chinese and Indian economy have showed sequential slowdown in growth rates and have seen a number of downgrades to growth so far this year. Such downgrades on the GDP front usually have a tendency to feed through to the earning cycle and therefore earnings downgrades are inevitable in this kind of a scenario. For the Indian stocks we saw the earnings downgrade cycle starting earlier on and therefore we may be nearing an end to this downgrade cycle. The Chinese stocks have started seeing downgrades a bit later on and we will have more to go before the downgrade cycle ends here. On asset allocation, we are somewhat evenly balanced between China and India with China a tad higher than India in allocation. On the issue of performance, the fund has done reasonably well so far this year in absolute terms and relative terms in what has proved to be a pretty volatile and difficult year for the markets in Asia.
