Focus on domestic businesses than IT firms in India
Adrian Mowat of JP Morgan
Jul 15, 2016 | Source: Economic Times
Do you think US equities and global equities are good to go for more: Our US strategist is forecasting some downside from the US equity market primarily based upon the earnings outlook. Now some of the drags on the earnings outlook have definitely improved the recovery that we have seen in the oil and other commodity prices from their lows. The fact that the dollar is no longer rallying like it was up until March 2015 takes away an important drag but for earnings, there are concerns about the impacts of Brexit.
My view as the EM strategist is I would rather own domestically focused businesses where I think there is going to be more positive delta than owning the soft services companies, which typically are very well run, good ROEs, very strong balance sheets hence the margin when looking at India, these are the exporters, these are the earners of revenue from abroad, which could be more adversely affected by events such as Brexit. There is another thing also -- remember that there is this very unpleasant trend going on globally that seems to be antiimmigration and anything that is tightening up these requirements etc is generally a top thing for the IT services companies.
India, among EMs, is now coming out of weak loan and capex cycle, most of this is aided by policies and reforms undertaken by the government.
We have India as we do with the other Brazil, Russia, India, China and South Africa (BRICS) as an overweight. So, our expectation is double digit returns, which would be consistent with the index moving towards the 9,000 level.
On GST: If GST did not go through, it would be a minor negative. But let us not forget that expectations on GST about a month ago were, it was not expected to be happening. And one thing we have been reminding clients is there has been a fair amount of legislation passed by this administration -- the bankruptcy code, these are all bits of legislation where the market is probably underestimating their beneficial impact. GST clearly is important in business efficiency, making India a common market, a great irony in the world of Brexit, but India is going in the right direction. So, let us hope it goes through, but I would accept that the market might pullback if it does not.