DNB India - Portfolio Manager's commentary 02/2014

2014 is a big year for politics in India with the elections to the central government in Delhi scheduled for April/May. These elections assume very great importance the kind of which has not been seen in India for the last over twenty years or so. This is because over the last three/four years, the economy from what started as a cyclical slowdown has deteriorated into something of a stagflationary spiral resulting from very poor governance and very inadequate response to the slowdown in the economy from the part of the government. When it comes to the outcome of the elections the signs look pretty positive as we stand here today. The main issues in the current election happened to be high inflation, corruption and poor governance as exemplified by inadequate infrastructure, poor public services and the lack of growth in employment and poor growth in general. So these are good signs and opinion polls suggest that a stable pro-growth coalition would be the most likely outcome. But what complicates the picture is the presence of very many regional parties which can cause the scenario to go awry and therefore it's a pretty difficult task predicting the outcome of elections.

Given that 2014 is an election year in India, volatility in the markets has to be taken for granted. My own assessment is that in the year 2014, there will be moderate recovery in growth as the year progresses with pretty strong improvement in sentiment for the outlook for 2015. Therefore our portfolio positioning is aligned along this expectation. We are looking at stocks which are good upgrade candidates going into the latter part of this year after a favourable outcome on the economy with good balance sheets, good managements and strong market positioning in their respective sectors. We are also overweight on IT services for some time now and that continues, albeit with a more modest overweight. We are looking at stocks across the market which qualify as growth candidates in a market economy that is reviving. So this is the overall positioning as far as the portfolio is concerned.