Expectations over resolution of the US-China trade war have receded and this has led to slower growth of economies.
Expectations over resolution of the US-China trade war have receded and this has led to slower growth of economies. The global capex expectation tends to decline and North Asian economies are possibly the biggest collateral losers. However, according to BNP Paribas, India is an exception. “India’s capex utilisation is improving and its earnings look better relative to Asian peers,” said Hong Kong-based Manishi Raychaudhuri, head of equity research (Asia Pacific) at BNP Paribas.
In contrast to the sharp downgrades that China, Korea and Taiwan have seen, India’s earnings trajectory seems to have stabilised. The ongoing trade war impacts North Asia much more, Raychaudhuri added.
Though the US-China trade war has slowed down the economy, it could not be bad for India. There could be a situation where corporate margins of Indian companies could recover going further.
For India there are nascent signs of private investment turnaround, viz, declining in cost of capital, supported by benign inflation and easing monetary policy. Benign monetary policy by Fed could be the silver lining of the global economic slowdown. This could be in the second half of next year.
With regard to India, there is a lot of room for real interest rates to decline. “Although India’s PE valuations are high, Indian comapanies tend to generate earnings higher. Almost 40-50% higher than the asian average,” Raychaudhuri added .
Also, the NDA’s success implies policy continuity and would result in strong tailwind for continuity. “Our overweight stance on India increases further, while our year-end Sensex target remains at 42,000,” BNP Paribas highlighted in its Asia strategy report. Thematically, financials, IT, industrials and select consumer discretionary are the sectors that the foreign brokerage like in India.