Growth Need Not Be Top Priority For Countries, Unlike Earlier Cycles: Neelkanth Mishra
Geopolitical crisis is set to remain an overhang, but those risks are not fully priced in, Credit Suisse's Neelkanth Mishra says.
Economic growth may not be the key priority for governments as they are looking to ensure self-preservation, according to Credit Suisse’s Neelkanth Mishra.
Over the last 20-30 years, people have become used to governments pursuing growth, and believe the state has a responsibility to grow the economy, Mishra, the India equity strategist at Credit Suisse, told BQ Prime. But the pandemic and a few years before have highlighted that the first priority of the state is self-preservation, he said.
As regimes focus on security--current and future--there is a change ushered in that economic growth is not the first priority, he said.
This could imply restrictions on specific resources, more specifically on labour and energy that are key components of all supply chains, according to Mishra. Restrictions on these would impact aggregate output growth--leading to a slowdown and creating downside risks to corporate earnings, he said.
According to him, investors tend to be neutral on geopolitics, which creates a downside risk. The current geopolitical crisis is not a blink-and-miss crisis and is going to be a long-drawn one, remaining an overhang on economies and markets as per political experts, but those risks are not fully priced into the markets, he said.
In the near term, as risk-free rates have gone up, the price-to-earnings multiples that one would expect should be lower, and higher equity risk premium or ERP--due to the geopolitical uncertainty--should be higher, Mishra said. These are sufficient reasons for eschewing risk, given the bounce seen in markets, he said.
On the positive side, he expects India to continue to trade at a premium to emerging-market peers. While there wouldn't be an expansion in premium, multiple reasons are there for India to remain a part of investors’ portfolio, Mishra said.
A major reason would be the revival in housing demand, which underlies the key factor for growth that India is likely to see. The acceptance of private profits portrays a change in the way the state is open to corporate profitability and global capital as well, he said.
Watch the full interview below: