Foundation for emerging markets' outperformance laid
Manishi Raychaudhuri , MD, Asian Equity Strategist, HoR, BNP Paribas
Jun 17, 2016 | Source: CNBC TV18
On Brexit & current market scenario : I wouldn’t directly comment on Brexit but in general you would notice that in this period over last week and over the next coming one or two weeks there are quite a few of these highly volatility inducing events that have come together. These periods are always a bit of an uncertain period for equity market. As we know equity market hate uncertainty so once these hurdles are behind us then I think clearer picture would begin to emerge.
There are several sectors which are potentially at earnings inflection points where after almost about one and a half to two years of earnings decline they are gradually beginning to recover over last two to three months. I would think that once this period of uncertainty is behind us then again investors would begin to look at fundamentals. The fundamentals today are possibly slightly better than what we had seen previously.
When we have a global volatility inducing events coming together then I don’t think any market would be absolutely resilient. Typically, in times like these there is a degree of safe haven migration that tends to happen. Assets tend to float towards the relatively less risky asset classes like US dollar or may be gold and bullion and so on. This volatility would obviously impact pretty much all asset classes and included within that would be emerging market equities and also Indian equities. I don’t think anyone can escape this round of volatility
However, having said this, as I pointed out that after we are passed this then we are in a situation where we have a significantly lower market levels then I would think that would provide a decent buying opportunity because they are good quality stocks and sectors which are available in the Indian market as across the rest of Asia as well. That would possibly lay the foundation for the next up move.
On Sectors: There are three or four pillars on which the India story rests right now. First, we think that the whole urban consumption side is doing fine. Rural consumption would possibly pick up at later date. We have had good monsoon forecast and if the precipitation and spread, the temporal in special spread is also good then that could be a second half fiscal 17 story. We would definitely focus on some of the consumer discretionary may be four-wheelers, two-wheelers. Also come of the consumer staples which have pretty significant footprint across these areas.
The second basket that I would like to highlight is the private sector banks particularly those which are focused on retail lending. Third, we are still bullish on the IT services side of India. They are the ones that are likely to gain the most as a consequence of the recovery in the developed markets. If we see another round of US dollar appreciation it would be mild, but still that would be a tailwind for these exporters.
Finally, we think a potential industrial recovery and we are seeing two legs of an industrial recovery going on right now which is the government’s sponsored infrastructure projects and foreign direct investment. If that results in a multiplier effect then the cement companies, building materials and some of the relatively low leveraged infrastructure companies which have footprints across different sectors that would also be an interesting basket to look at. So, those are the three or four silos that we focus on when investing in India.