“India would slam dunk be an overweight” for him if he were a global or an emerging market investor with a medium to long term view, according to market veteran Bharat Iyer.
He cited two reasons for his optimism: the usual demographic advantage India has and which he expects to get stronger in the next 15-20 years. The other, he said, is that in a world with a lot of liquidity, “We have the ability to absorb a lot of capital and we offer very attractive yields.”
Iyer, however, cautioned earnings wouldn’t grow at the expected 30% plus in the near term if the second wave of Covid-19 is not curtailed. India’s underperformance against global markets could continue until a critical mass of the population is vaccinated and there is more confidence on growth, he said in an interview with BloombergQuint’s Niraj Shah.
Global sectors such as mining and metals, and information technology have fared better than the domestic-oriented sectors such as banking, auto and real estate in the past two months, he said. Nonetheless, he advises using the dips in the domestic sectors to “beef up positions”.
The Indian economy will be driven more by local than global factors he said, adding that the domestic consumption segments have a lot of potential.
Emerging Vs Developed Markets
The debate on the potential of developed and riskier emerging markets is “not going to be very easy” and will vary from country to country, he said. Even within the developed markets, the U.S. seems to be outperforming Europe due to better vaccination and growth data, he said.
Some emerging markets will have more success in terms of the vaccination drives initially, he said. According to Iyer, the index of economic surprises on the positive side will, therefore, be better for some markets and worse for others.
“You’ll be surprised to know that three EMs have actually raised interest rates in the last three months,” indicating that some EMs are very confident and comfortable with their growth construct. Some, however, warn of pulling back stimulus and others still need to keep the stimulus alive, he said.
The U.S. markets are in “the sweet spot” due to extremely positive vaccination and growth data, he said. But inflationary “concerns are valid and one must be on the lookout for that data which, if it gets ugly and becomes the cause of rising yields could pose a problem”.