Indian markets would start to lag its Asian peers once North Asia starts to revive, said Manishi Raychaudhuri, head of Asia-Pacific equity research and Asian equity strategist at BNP Paribas. In an interview with Ankit Doshi, Raychaudhuri shared his investment themes while highlighting the strategy of capital preservation. Edited excerpts:
What is the view on India vis-a-vis other Asian markets for 2023?
India’s outperformance this year arises to a large extent because of North Asia getting pulled down by the twin forces of developed market demand retrenchment, which we are still in the midst of it. India and some of the pockets of South Asia ‘under-outperformed’ rather over the past almost 16 months now. We think that for now, these outperformances are likely to sustain. India would only begin to underperform when North Asia revives. The Chinese authorities are gradually beginning to get out of the restricted policies like Covid-zero. This could lead to outperformance by China. But for now, we’re sticking to our overweight stance on India because it is a stable island in a stormy sea.
How much more upside do you see in the market next year?
The first half of the year is still going to be very difficult, very tough for emerging markets. We are not yet out of the inflationary pressures in the developed markets (DMs). We are living in a world where quantitative tightening is now in full swing. Compared to the 2018 episode of quantitative tightening, this is going to be much more severe. The pressure on the Asian currencies is unlikely to abate anytime soon. When you put all this together till maybe the first or the second quarter of next year, the pressure on the Asian EMs would likely continue. So the recovery, if any, will possibly be only in the second half of next year.
What is the possibility of a severe recession in the West and how will it impact India?
Europe is possibly already in a recession this quarter and the next. The only saving grace there is if the rate hikes do get capped at 5.25% and the Fed realises that they are in the process of triggering a recession, they will possibly stop there. And we would end up having a relatively shallow recession compared to what we have seen in the last three occasions when the recessions lasted for about 16 to 18 months. There is no evidence anywhere that EMs are protected during a DM recession. But this time, there is one slight difference. EMs have already reacted or have proactively been dragged down. It does clearly seem that the next round of big drawdown could be in the DMs rather than in the EMs, which would possibly bottom out earlier than DMs.
What have you been advising institutional investors?
Our advice to institutional investors in Asia can be summarised in two words: capital preservation. Being overweight on India is part of that strategy. We are concentrated on certain pockets which have a growth story attached to them. The private sector banks and private insurance is one large pocket we play. Similarly, four-wheelers are growing faster rather than two-wheelers. We have exposure to both the conglomerate and the standalone play in telecom. We still do like some of the frontline large-cap IT service companies despite the concern that their order flow would decline.
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