{"id":172058,"date":"2023-03-08T05:37:06","date_gmt":"2023-03-08T05:37:06","guid":{"rendered":"https:\/\/precoinnews.com\/?p=172058"},"modified":"2023-03-08T05:37:06","modified_gmt":"2023-03-08T05:37:06","slug":"india-is-in-a-sweet-spot-for-the-next-few-years","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/india-is-in-a-sweet-spot-for-the-next-few-years\/","title":{"rendered":"‘India is in a sweet spot for the next few years’"},"content":{"rendered":"
‘While foreign institutional investor flows are still negative, they will turn positive in the latter part of 2023 as India’s resilient growth becomes perceptible.’<\/strong><\/p>\n Sticky inflation and the possibility of longer-than-expected monetary tightening by global central banks, including the Reserve Bank of India, have made markets highly strung.<\/p>\n Jyotivardhan Jaipuria<\/strong>, founder and managing director, Valentis Advisors, in conversation with Puneet Wadhwa<\/strong>\/Business Standard<\/em>, says India is in a sweet spot for the next few years if discussions with most foreign investors are any indicator and they wish to remain overweight on Indian equities.<\/p>\n How do you see the global equity landscape evolve in 2023?<\/strong><\/p>\n There is room for some optimism. While the market has some hope that the US Federal Reserve will start cutting rates by end-2023 or early 2024, we do not expect any cut by the Fed in 2023, although there could be a long pause.<\/p>\n However, the pause itself will be a positive sign for markets.<\/p>\n There have been six Fed cycles in the past 40 years.<\/p>\n On average, markets have given 4 per cent returns six months after a pause and 12 per cent returns after a year, with only one of six returns being negative.<\/p>\n While these are positive indicators, the one negative to watch out for is the possibility of a recession.<\/p>\n An average recession in the US lasts 12.5 months.<\/p>\n The average stock market returns during a recession have been flat.<\/p>\n After a recession, markets have seen a rebound, with average returns aggregating 15 per cent.<\/p>\n While near-term markets may be under pressure, 2023 will be a positive year for global markets, although a lot of the returns may be back-ended.<\/p>\n The markets are likely to give single-digit positive returns for the year.<\/p>\n Is the possibility of a meaningful correction in Indian markets over the next few months becoming more real?<\/strong><\/p>\n Near-term movements in the Indian market will be driven by global peers.<\/p>\n Any significant correction will be a buying opportunity.<\/p>\n The gross domestic product growth rate in India will be among the fastest in the world, steering double-digit earnings growth. This will ensure interest in Indian equity markets.<\/p>\n Does the market expect more skeletons to tumble out of Adani Group closet?<\/strong><\/p>\n The overall debt of the group is manageable, given these are infrastructure assets with regulated cash flows.<\/p>\n The Indian banking system is not at risk since 70 per cent of the overall loans of the group are from foreign banks.<\/p>\n The group may now consolidate its expansion plans and focus on the implementation of existing projects rather than look at new ones.<\/p>\n Which sectors are you overweight\/underweight on?<\/strong><\/p>\n We have two themes for the year.<\/p>\n One, the domestic sectors are likely to continue to do well relative to global-facing ones as the extent of the global slowdown could lead to earnings downgrades in sectors reliant on the global economy.<\/p>\n Two, within India, the investment-oriented sectors will fare better than the consumer-leaning ones, given the government’s capital expenditure push.<\/p>\n In line with this theme, we are overweight on banking and capital goods.<\/p>\n Another broad theme we are overweight on is linked to companies that saw severe margin compression last year due to high commodity prices, such as cement and ceramic.<\/p>\n These sectors will see margins reverting to mean, in turn driving stock performance.<\/p>\n China and Taiwan are some of the markets that have been on foreign investor radar. Do you see a capitulation any time soon?<\/strong><\/p>\n India, Brazil, and Indonesia were some of the best-performing countries for 2022.<\/p>\n However, from late 2022, the unlocking of China and the expectations of a Fed ease led to a strong performance by all countries that underperformed in 2022.<\/p>\n China was a big gainer, rising nearly 50 per cent from its lows in a few months.<\/p>\n Our discussions with most foreign investors suggest that India is in a sweet spot for the next few years, and they wish to remain overweight on Indian equities.<\/p>\n But what are their overarching worries?<\/strong><\/p>\n Relative valuations with price-to-earnings valuations trading at over 100 per cent premium to emerging market valuations are the biggest concern.<\/p>\n With a rally in other countries, a narrowing of this valuation premium will help flows into India.<\/p>\n While foreign institutional investor flows are still negative, they will turn positive in the latter part of 2023 as India’s resilient growth becomes perceptible.<\/p>\n How big a threat is sticky inflation to the market sentiment back home?<\/strong><\/p>\n While inflation has been sticky, we think it is peaking and will come within the RBI band this year.<\/p>\n Monetary policy works with a lag, and we are likely coming to the end of the interest rate-hiking cycle with probably another 25 bps expected in the next policy meeting.<\/p>\n The market is not factoring in any major interest rate hike. The consensus is that we are close to a prolonged pause in the rate hike cycle.<\/p>\n