Indian market was in investors favorite just six months ago. However, there has been a dramatic change in the situation. The Equity Strategy Head (Asia Pacific) in HSBC has considered the growing American bond yields, better performance of Chinese markets and softening in earnings as an important reason for the current selling of the market. Linde said in an interview with Samee Modak in Mumbai that investors should focus on areas and things that can benefit from the current economic environment. Edited Excerpt:
A few months ago, India was a favorite market for foreign investors. But suddenly it has rotated 180 degrees. What has happened?
How soon the market’s sentiment can change, we have seen it in China earlier. Between 2018 and 2021, everyone wanted to live in China and then they became cautious. The main attraction in India was a lot of income growth on which questions are now being raised. Now it seems that we have to keep less multiple multiples for this market. With this, American bond yields started to boom, due to which foreign portfolio investors started withdrawing money from one -end markets. This increased the pressure on Indian equity. Apart from this, China also started performing well. Talking about FPI, you sell in the market where it is easy to sell and India is one of them. Therefore, it is a mixed form of earning concerns, increasing bond yields and China’s attraction.
Do you think the withdrawal of foreign capital will stop soon?
It can return for these three reasons. If China’s better performance turns and investors start selling in China for any reason, then it will probably support Indian equity from the attitude of the amount of money. Second, if the bond yield is reduced then it will be positive. And if we see clarity on the actual increase in income, it will also help. The market is uncertain whether India’s income hike will be 15 percent or 10 percent. These factors may take time to be clear. Our rough estimate is that the growth will probably be between 10 and 15 percent. But the previous quarter figures were very weak. If China’s performance changes, we get more clarity on income and the American bond yield decreases then India can get help. The direction of American bond yield is important. If the yield is more then the money goes to America and if it decreases then it is okay to invest elsewhere. Another factor is the domestic monetary policy that has been strict for many years due to high inflation. Now that inflation is decreasing and is in the target range of the central bank, if the monetary policy becomes less strict, it can help banks.
Do you see the expectation of softening in the American bond yield?
If the US charges a fee, it can increase inflation there, which will inspire the central bank to increase rates and will increase the bond yield. On the other hand, if the American economy slows down in the near future and unemployment figures increase, the bond yield may decrease. The market is currently swinging between these two scenarios. Bond yield has decreased slightly but not too much. If the bond yield comes down further, this environment will be quite positive for Asian equity including India.
What is Outlook for China?
We believe that Chinese shares are not only incredibly cheap but the growth is also likely to be better than expected. There is a huge amount of cash – 22 million million dollars in the mainland China. If trust returns and some of these money is invested in equity, then it can be quite positive. Low assessment, good growth and having a lot of cash near us are confident that this market can perform very well.
How is your situation in Asia right now?
We are neutral on India and South Korea. China, Indonesia and Hong Kong are overweight. There are underweight on Taiwan and Japan. Instead of looking at India from the point of view of market cap, we want to focus on growth stories or areas that benefit from the current economic environment.
Is there any theme for India which is different?
There is a tech which benefits from weak currency. The recent income season has also shown a better landscape of growth in America. In the consumer sector, we prioritize discretionary rather than staples due to more attractive evaluation. Despite weak domestic demand, automobile companies are also targeting high -growing areas abroad. The hospital is another area, which we like because of their long -term structural progressions. We also like private banks, where evaluation is attractive and increased liquidity can benefit them.
Would you like to distance any area?
Capital goods and infrastructure areas. In the recent budget, the entire focus has gone away from the infrastructure to domestic consumption. So we can see some changes from these areas.
Any other global risk that investors should be careful?
The fee on China is important concern. If the US imposes more fees, it can increase inflation and affect the stock markets. The speed of bond yield is also important. If the fed is not able to cut interest rates due to inflation pressure, it can strengthen the dollar which will not be good for the Asian stock markets.
Do you think the current decline will increase further?
It depends on the factors that we have discussed above. If China’s performance is good, bond yields are low and the picture of income improves, then investors can return to India. But if China continues to rise and the American bond yield increases, then it cannot attract investors.
First Published – February 19, 2025 | 11:15 pm IST
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