India is well placed to take advantage of supply chain diversification as several multinationals around the world are looking to reduce "single-country risk", said James Sullivan, MD of Asia Equity Research at JPMorgan.
“India is perhaps the best-placed in the world right now to take a share of global manufacturing, to take a share of supply chain diversification," he said.
Sullivan, however, said JPMorgan is 'underweight' on India right now. "On a global basis, JPMorgan is forecasting a 4 percentage point loss to global growth at the end of 2021, so this is not just a short-term conversation. The global number is 4 percent, the lost growth from markets like China would be only 70 basis points (bps). For India, that number is 9.8 percent and so we do see a significantly shallower slope of growth for the Indian economy moving forward which makes the valuations that we are looking at in the market somewhat challenging,” he said.
In terms of liquidity, he added, “Markets should not be trading at higher valuations solely on the basis of lower rates because we are effectively ignoring the other half of the coin which is future expected growth rates. As a result, the valuations that we are seeing for many sectors, particularly the consumer space in the Indian economy, are troublesome.”
Many governments have been proactive in their approach to addressing the concerns of citizens during the COVID-19 crisis which raised expectations of a V-shaped recovery for the global economy. However, JPMorgan is arguing that this recovery will be incomplete. “We will have a degree of lost gross domestic product (GDP), we will see slower growth rates and the spread of those growth rate differences is a very important topic of conversation,” Sullivan said.