Bank Julius Baer & Co is now overweight on India versus a neutral rating earlier, said Mark Matthews of the private banking institution, on Thursday.
“We just upgraded India to overweight from market weight. We like it more because the largest sector is the bank—35 percent of the Indian market and it’s a sector which benefits from the economic recovery, we think the Indian economy is going to grow by 9 percent this year and 7 percent next year and it benefits from rising interest rates, it benefits from the creation of bad banks which was announced in the union budget,” Matthews told CNBC-TV18.
He further said, “IT is the second large sector at around 20 percent and it’s not a cyclical sector; it’s more of a structural story but that’s fine, there are still good things there. The sector that comes after IT is energy and it’s 16 percent of the Indian market and also a cyclical sector. Therefore, I want to say that the Indian market is a cyclical market.”
We expect rising interest rates to weigh on benchmark indices which have become technology-heavy, he added.
“The leader in the last for the last 10 years is the technology sector which has very good underlying stories and there is no doubt about it but there is also no doubt that the valuations of tech stocks have been significantly inflated by low-interest rates because lower interest rates are the more you are willing to pay for the future earnings and 7 of the top 10 constituents in the MSCI world index are technology stocks. Therefore, what we are going to see is rising interest rates weighing on the benchmark indices that have become so tech-heavy, but underneath the index you are going to get good performance in the companies that traditionally benefit from the economic recovery and those are financials, industrials, materials, energy and the likes.”
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