Indian equities 'relatively' attractive among EMs, believe analysts

Many Emerging Market stock pickers believe that ‘relative’ position of Indian equities has improved as compared with several Emerging markets after accumulating evidence of a slowdown in China, which has led to many economists paring down their global growth estimates.

Experts believe that strengthening of India's ‘relative’ position merit for an increase in overweight position in the portfolio of global fund managers. They point out that the exposure of global fund managers may surpass or reach the weight Indian equities enjoyed in their portfolios in the beginning of this year.

“India remains the clear standout amongst the major EM economies. What is currently happening only enhances India’s relative attraction. In a growth starved world India looks good, particularly as it’s more domestic growth not driven by export” said Jonathan Schiessl, head of equities at Ashburton Investments, which oversees $12 billion worth of assets. Similar views have been expressed by other experts.

Nathan Griffiths, a senior emerging-market equities, who overseas $1.2 billion at NN InvestmentPartners in Netherlands said, “India’s relative positioning has improved substantially. It has limited exposure to China. Weak global growth which will persist for years to come will work in favour of India.

After a decade of economic mismanagement, India can grow through domestic impulse. Probably GDP estimates are too optimistic in the very near term but the country still faces lesser downgrade pressures than most other EMs.” Michael Wang, a London-based strategist at
Amiya Capital LLP, said in an e-mail to ET, “India’s position relative to emerging markets has improved, less so because of a material improvement in the Indian economy but rather, because the fundamentals in other emerging markets (especially China) are worsening.”

There are two paramount reasons for global investors are relooking at Indian markets. Firstly, dollar debt in Indian market is lower than other emerging markets. In the event when the US Fed increases its interest rates, Indian markets are not as vulnerable as other emerging markets. The size of dollar debt in EM doubled in the past five years to $4.5trillion, according to the Bank for International Settlements.

Hence, dollar surge this year has raised concerns with large amount of dollar-denominated debt. In the same duration, India's net dollar debt increased by $72 billion, which is not so large as compared to total dollar denominated debt of other emerging markets.

Even if Fed increases interest rates India still is best equity market points out in an equity fund manager survey conducted by Bloomberg. Secondly, crucial reason why global investors are relooking at Indian equities is due to waning of role of China in fuelling global growth. India's exports to China are less than 10% of its total exports and it competes with few Chinese manufactured products in the global markets.

If one combine frontier as well as emerging markets, which is a total of around 40, out of these about 22 markets are in the bear markets phase. India is an exception, it is in a bull market phase. “The reason for why FIIs are bullish on India, is that India has never achieved this kind of financial stability even when a hawkish stance is maintained for EMs.

From a point of view of an external risk, India is currently best placed when compared with it's last twenty five years” said Ridham Desai, Head of India Equity Research & India Equity Strategist, Morgan Stanley

The street is now pricing the earnings growth of 12% and 15% of FY16 and FY17 respectively. The point to notice that earnings growth of benchmark indices have downgraded mainly on account of revision in the commodity companies and Tata Motors which shows market is pricing risk emerging from the Chinese slowdown. Nevertheless, rest of the companies are either showing growth bottoming out or positive earnings momentum.

On the currency side, Indian Rupee has been turning more credible among the investors which matters most of a foreign investors to choose which country should be preferred. Though the rupee has dipped recently and could be let to slide slowly, its depreciation so far has been one of the lowest in EM.