Why Bharat Iyer Says It’s Time For Investors To Take Money ‘Off The Table’

While the central bank’s liquidity push is driving India’s stocks and their valuations higher, Bharat Iyer, former JPMorgan head for Indian equities, said it may be time to take money "off the table".

The liquidity ammunition has already been fired and priced in, Iyer, now an independent investor, told BloombergQuint in an interview. While economic activity saw a sharp uptick in June from the lows of April, some indicators show this may be leveling off. Markets, however, have “very high expectations” that economic activity will soon reach the pre-Covid levels. A falter in these expectations will get the markets worried, he said.

"I don’t think economic activity will come back in a hurry so I would be a tad bit cautious. If we see any deterioration in trend, then markets have a lot to be worried about," he said.

That corroborates with the view of Nomura’s chief India economist who said some of the high-frequency indicators are likely to plateau in the face of still-increasing infections. India's GDP contracted by nearly a quarter in the three months ended June, the steepest in Asia, on a collapse in consumption.

Iyer doesn’t expect India to see a quick economic recovery since the stimulus response to the pandemic has been muted compared to its Asian peers. While the Reserve Bank of India has used its toolkit well, its fiscal policymakers have limited resources at their disposal. And that is okay, Iyer said. “Expecting the government to be reckless at this stage and going beyond the 15% of GDP-mark, given we don’t know the entire nature and complication, in my opinion, is very reckless,” he said.

India's Structural Story

India’s economic recovery will be slow, according to Iyer, with activity likely to fall 10% short of normalcy this fiscal. Next year, the country might reach 5%, he said.

This, he said, will only impact the near-term tactical response of global investors. India’s long-term structural story remains secure. “We have a few things things going for us, unique demographics and the ability to absorb large amounts of capital,” he said.

“From a global investor point of view, India's bond market will always be overweight.”

About domestic trends, Iyer said the pandemic is only accentuating the shift of fund allocation from traditional sectors like resources, transport and real estate to new-age sectors like communication, technology and healthcare. Education and pollution control may even attract funds because that’s how the world is evolving, Iyer said.

Here’s what he had to say about various sectors.

Healthcare

• The structural potential of these businesses are coming back to the forefront.
• Apart from medicine makers, hospital infrastructure can also see meaningful growth.
• The space is also very fragmented right now and needs to consolidate.
• Return ratios in the space tend to be good and there is no reason that shouldn’t happen in India.

Information Technology

• IT is an excellent space to invest but need to watch out while for three-five years because all IT companies are not going to do well.
• Some IT companies are still stuck in their old traditional ways.
• Those that make the new transition will have a bright picture and merit higher valuations.

Telecom

• Communications is worth investing on a three- to five-year basis on its structural potential.
• Telecom has legacy issues, but they are getting resolved. At some stage, pricing will improve. Volumes will increase more sustainably.
• Customers don't have to be encouraged to use more volume anymore, lot other value-added services will come up.
• Telecom is not a space with just two to three names. There are other exciting names in the listed area. This includes companies that do communications services, and those that enable communication services as well.

Watch the full conversation here: