Why JM Financial Says India Equities Will Retest Recent Lows
Vinay Jaising said his main thesis is that Indian markets will outperform in the medium term, absolute and relatively.
The Russia-Ukraine war, quantitative tightening and earnings downgrades are the reasons why JM Financial expects pain points in the markets to continue and the recent lows might not be the end of it.
“World isn’t yet in a situation wherein one would be positive in the equity markets,” Vinay Jaising, managing director of portfolio management services at JM Financial, told BQ Prime’s Niraj Shah. “We’re living in an environment where we are paying a lot more for the short term than we would for the longer term. That’s not comfort levels for us.”
According to him, foreign outflows might not end soon because India and emerging markets are outperforming substantially. “Until the weightage for India in the MSCI EM index goes up, the trouble may not be behind us.”
“MSCI Emerging Markets index has a 13-14% weightage for India. Indian markets are up 10% in the last month, the world is up 6% and China is down 12%. The underperformance is so substantial that if you’re an exchange-traded fund, by default, on a monthly basis, you’ll start pulling your money out of India and balance your portfolio,” Jaising said.
Also, Jaising said his main thesis is that Indian markets will outperform in the medium term, absolute and relatively. “The GDP story is intact. The corporate profitability of the country is far higher than the economic profitability. Having said that, it also depends upon liquidity for the rest of the world, because of which we’re relatively cautious of the Indian market.”
Another reason why Jaising is cautious is that valuations of Indian markets are at over 20x the one-year forward value, which is in line with the five-year-forward value, but unfortunately, it’s at a 90% premium to MSCI EM against an average of 45%.
The risk of quantitative tightening will also weigh, since the U.S. and banks are unwinding liquidity and support granted during the pandemic.
Listen in the full interview here: