Short-term challenges for IT and Metals, but consumer and financial sectors offer upside: Rana Gupta
Rana Gupta
, Manulife Investment.
Just wondering how you are looking at the
market
construct or is it going to be just what happens in the next 90 days and then what happens after, is that how we are supposed to break the timeline?
Rana Gupta:
Next 90 days, what was started about 30 days back and next 90 days are very important for the market, but I would like to highlight that this is the beginning of a very long process where the global trade and investment flows will get rebalanced.
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And after 90 days we can get some finality maybe in terms of tariff rates and that can be lower than where they are currently. But that does not mean that all the uncertainty will be behind us.
In fact, the hard work starts after that because corporates will have to work out their
investment plans
, their supply chain relocation if applicable. All these are going to be quite complex and will create a quite a bit of uncertainty. What we can say is that for the rest of this year because of this uncertainty, globally the growth should be a little lower than what we expected in the beginning of the year and inflation particularly in US higher than what we expected at the beginning of this year.
So, global markets as well as
emerging markets
including India has to contend with all of that. So, it is just not 90 days, it is going to continue well beyond that.
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So, what do you think is going to pose a challenge for India in particular because one has already seen that India and US not a done deal yet, but at least are close to seeing eye to eye when it comes to tariffs. China, of course, is a separate story altogether. The good thing has been that for India, at least in the last one month the FIIs, FPI money has been coming back and to be fair for us the correction already played out, a large chunk of it from last year up until the first quarter of this calendar year.
Rana Gupta:
No that is absolutely right. India started this kind of tumultuous time in the financial markets in a good shape in the sense because of the selling, the positioning was already light. Also, as a result of the tariff situation, the India's export to US is 2% of GDP, so the direct impact is indeed limited.
In fact, one of the lowest among across all the emerging markets. And good part is that the current policy makers they are trying to forge this, this FTAs with US and UK which are all positive.
This should increase in time FDI investments and India should be a worthy candidate for the supply chain restrictions if and when that happens.
But that is all medium to long term. In the near term, there will be undoubtedly some consequences of the global uncertainty that you spoke about. But the good part about India is that there is some policy support because of the robust growth and the reform that has happened in last 10 years.
We are pleased to see that even during this uncertain times RBI could ease the monetary policy, there is significant amount of liquidity injected, rates cut, and then there is fiscal headroom.
I am not saying there will be necessarily but that gives us some sort of comfort. So, the way we are thinking about India in near term policy uncertainty, yes, but at the same time there are policy offsets and the medium to longer term picture continues to be quite bright on the back of India being getting more integrated into the global supply chain and particularly in that context the areas like pharmaceutical, CDMO, electronics, textiles on those areas I think India stands on a very good footing.
Since you just highlighted that one can take a short as well as a medium-term view. Let us break it down that way. If somebody has to take a short-term view given so much of uncertainty, around which sectors are the preferred bets right now and believe that the medium-term story stays intact for a lot of sectors, where are you placing your bets within that?
Rana Gupta:
So, let us break it down in short and medium to long term. In the short term, clearly, the globally linked sectors whether it is IT or metals and all those sectors will face some headwinds.
Although, the correction that we have seen in large it gives us some comfort, but the headline wise, the earning momentum wise, they still continue to be soft for a while.
On the other hand, the two positives that we are seeing in Indian markets, the policy support on the rate side, liquidity side, as well as the global crude oil price fall, this means that the consumer sector could see some revival because of tax cut and rate cut. At the same time, the input costs can go down because of the crude oil price falling so that is one sector that we like.
We also like the financials because we think credit growth is going to pick up. In the short to medium time, we continue like the Indian infrastructure segment which are non-tariff related and because of the correction they are offering now good risk-reward and this will be something like in the power sector and also telecom sector looks quite steady to us.
In the longer term and this is quite long term, for long-term patient investors it will be time to look into, dive deeper into the electronics manufacturing value chain, look at the beneficiaries of the component suppliers there, also to look at pharmaceutical, CDMO, and as well as the textile sector, these can be the long-term winners out of the supply chain relocation.
But again, the word of caution is many can get excited by saying that Apple has now announced they will relocate the production of iPhones bound to US in India and that should not make us believe that the supply chain relocation is easy.
We know for a fact that Apple started five-seven years earlier and that is why they are in a position right now. So, I have no doubt in electronics, in pharma CDMO, in textiles India will gain market share but patience will be required.
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