Highlights of?Milltrust India Fund?Conference Call held on Friday 25th of April 2014.

Macroeconomic Picture:

  • High?Inflation?and low?GDP?rates?have taken their toll on the Indian markets in the last 6 months. Inflation has now been cooling and should come down to the 6-8% targetted by the RBI. Sharp rises in food prices have been the main culprit to inflation and have now been addressed.
  • The elevated?Current Account Deficit?(CAD)?has now reduced after reaching record levels of 4.5-5% in the first part of last year. The sharp reduction in gold imports (which have halved) and the stronger export growth relative to import growth mainly in the textile and oil sectors, coupled with stronger IT services growth have been beneficial. CAD should be around 2.5% in 2015.
  • Fiscal Deficit:?Targets have already overshot in the first 9 months but given that much of these expenses have been front loaded, the 4.7% target should remain in check, and should decline further in 2015.
  • The?Indian Rupee?touched a peak of 68 on the back of a high CAD and global volatility. Since then the currency has stabilised and has been one of the best performing currencies over the last quarters thanks to the RBI managing the situation well and orchestrating over $30bn in inflows. The INR should remain in the 58-62 range.

Elections:

  • The opposition party is favoured to win the 2014 elections, led by Narendra Modi who has had an exemplary track record as governor of Gujarat province over the last 10 years.
  • The positive outcome is expected to trigger a clearing out of most of the project bottlenecks and reforms that have been stalled by political inaction.

Equity Markets:

  • The Sensex has performed well compared to other emerging markets. Valuations still remain below the historical average.
  • Further earnings upgrades could take place in sectors that have not yet been captured in growth projections as key government projects get implemented with the new leadership.

Current Positioning

  • Shifting exposure from export led IT sectors to?High Beta Banks?(public sector and private sector banks) as UTI expect improving economic environment to drive?outperformance of domestic infrastructure linked sectors.
  • Overweight on Consumer Discretionary?as the managers expect improvement in sentiments to drive a strong pick up in?Automotive volumes and Textiles.
  • Building a good?basket of mid cap stocks?centered around various themes of?Lifestyle?(Arvind & Raymond),?Transportation?&?Logistics?(Adani Ports, GE Shipping) and?mid cap high growth banking?and?NBFCs
  • Underweight on Energy?as UTI expect higher subsidy burden on Upstream Oil PSUs to meet Fiscal deficit target
  • Cautious on Industrials & Materials?as UTI do not see sharp recovery in Infrastructure investment & will take a view post general Election.

The portfolio is not being built on the basis of a new government being elected but rather, it is being positioned to still capture growth opportunities without any dependence on the actions by the governement. Energy and Utilities would be biggest beneficiaries of any implmentation of reforms by a new govenment, as well as Industrials which are all sectors UTI would seek to increase at the appropriate time.

For more information please contact info@milltrust.com