India could emerge as a major beneficiary of the ongoing US-China trade war as a shift to manufacturing away from China is a key long-term trend, according to to report.
India could emerge as a major beneficiary of the ongoing US-China trade war as a shift to manufacturing away from China is a key long-term trend, according to to report. The ongoing US-China trade war, rising costs and tougher environmental laws suggest that India has real opportunity, UBS said in its report. The Indian stock markets, trading at 18 times earnings (1SD above the mean), are pricing in earnings growth in the teens over the medium term and remain the big ‘growth hope’ story for investors, said the firm. “Real GDP needs to grow 8%-plus to deliver these earnings expectations,” UBS said, adding that it is achievable in case of its upside scenario, and markets can have further upside if blue-sky scenario plays out.
The research firms recent surveys across Asia suggest that many CFOs are evaluating options for shifting manufacturing out of China, with India emerging as one of the preferred destinations. “Of respondents to the UBS Evidence Lab India CFO survey, 85% had received meaningful enquiries for foreign direct investment (FDI). The UBS Evidence Lab CFO Survey in United States also favours FDI into India,” said the report.
The research firm estimates that this shift in focus could propel India’s GDP growth to 8-plus percent on the back of additional job creation, and higher exports. “The boost to direct job creation could be 1 million to 4 million per annum (and a similar boost to indirect job creation as well). Higher exports will also lower India’s external stability risks, potentially being reflected in lower currency volatility,” noted UBS.
Taking stock of the key sectors and stocks that may benefit from this shift, UBS said that Apparels, Chemicals, Industrials, and Electronics may see traction. “The bigger beneficiaries in terms of stocks should be from sectors benefitting from higher GDP growth,” the firm said adding that, of these sectors, financials and Autos are not pricing in the upside scenario, unlike Consumers and Cement. Among the its top bluechip picks are Axis Bank, ICICI Bank, Kotak Mahindra Bank, ICICI Bank, Maruti Suzuki and Titan Company Ltd.