Manishi Raychaudhuri, Asian equity strategist, Equity Cash Asia Pacific, BNP Paribas, said the house has chosen not to stay out of the rally currently on in the Indian equity market.
“They have upgraded India to overweight from March 30 and have reduced exposure to north Asia, particularly Taiwan and Korea at that point of time. Right after the elections came through, we increased our exposure on India even further and this time around reduced somewhat from China because this time around things are looking relatively better in India and pockets of South-East Asia than in North Asia,” he said in an interview with CNBC-TV18.
Political stability and policy continuity are the two main factors that are exciting foreign investors, says Raychaudhuri. Moreover, under the present government legislation could turn out to be easier than it was earlier because compared to 2014, the ruling National Democratic Alliance has more seats both in the lower and upper houses of the parliament.
Also if the fence sitting parties decide to support the NDA then legislative process even for some of the controversial laws would turn out to be easier, said Raychaudhuri adding that they expect structural reforms to continue. In the earlier regime they attacked the problem of capital through Insolvency and Bankruptcy Code (IBC) and in this regime they could address the issues of land and labour.
The house is also positive on industrials on back of revival in the capex cycle. Within industrials it will look at spaces like capital goods, construction etc, he said.
According to Raychaudhuri, consumption slowdown is the biggest challenge for the government at present — generating worthwhile jobs and for that reinvigorating private capex cycle would be the key but they are hopeful of that happening going forward. The slowdown seen could be because of income uncertainty, he said.
When asked if they would look at the agriculture sector now, he said as a sector they would be positive on the space but selectively look at companies with deleveraged balance sheets and growth opportunities.
The house does have exposure to IT in a small way, particularly the large frontline 2-3 companies but does not have any exposure to pharma, said Raychaudhuri.
Talking about global growth, he said we are entering a late stage of the cycle where growth slowdown is coming through but the silver lining is that as a consequence of this global central banks are taking much more benign outlook on monetary policy. “We are likely to see quantitative tightening (QT) ending by September. Bank of Japan and ECB are likely to continue expanding their balance sheets for the foreseeable future.
“We are also looking at the potential of the US dollar moderating against the developed market currency in second half of the year and this actually is almost a surefire recipe for some bit of portfolio allocation in favour of emerging markets (EMs).