Top Sectoral Picks From BNP Paribas' Manishi Raychaudhuri
BNP Paribas prefers financial, automobile and Tier-I IT and select consumer staples companies in India.
India's domestic economy and corporate earnings growth remain steady while externally linked sectors are being dragged in terms of corporate earnings, particularly IT services companies, according to Manishi Raychaudhuri of BNP Paribas.
High trade deficit and consequent pressure on the currency are factors that weighed down the external sector, Raychaudhuri, the head of Asia Pacific equity research at BNP Paribas, told BQ Prime's Niraj Shah.
However, he is "reasonably positive" that fuel prices will remain stable and the rupee will stabilise at current levels, as major suppliers refrain from curtailing supply.
"There is no doubt that Indian markets would suffer if the world really is going into recession," said Raychaudhari.
Recession in developed markets is not the base case scenario for BNP Paribas, he said.
That's not our base case, we are sort of cognisant of a recession risk in European region, but not in the U.S. primarily because of the jobs situation. The employment situation still remains robust and we think what the Fed is doing in terms of rate hike, it will obviously lead to a slowdown and that's what they want to engineer. But will it lead to a recession? I mean we are sort of reserving our opinion on that.Manishi Raychaudhuri, Head of Asia Pacific Equity Research, BNP Paribas
BNP Paribas remains bullish on financials, automobiles, tier-I information technology companies and select consumer staples in India.
While the rise in credit growth offers a rationale to pick private banks, improved discretionary consumption could aid automobiles, Raychaudhuri said.
Strong order flows and currency depreciation could benefit IT firms, while the decline in soft commodities could drive margins of consumer staples higher, he said.
'Overweight' On India
BNP Paribas has retained an 'overweight' rating on India in its Asian model portfolio.
According to him, the elevated rate hike regime is likely to last for the foreseeable period and the liquidity—that is being sucked out from the global asset market—would have outsized implications for flows in Asian markets.
The Fed is in line for a 75 basis points hike in September followed by a series of 50 bps or 25 bps rate hikes to take the terminal rate near 4%, he said.
The implication of the Fed and other developed market central banks' rate hike is not "positive" for Asian asset markets, Raychaudhari said.
He mentioned the divergence in Asian markets with China and South Korea trading at record low valuations, while Asean markets and India are faring "relatively better".
He noted the emergence of the 'Sell' (North Asia-China, Korea) and 'Buy' (India) trade among FIIs since July. While the trend may last, relative valuations remain a concern for India, he said.
China's policy meeting in mid-October would be a crucial event and could have implications for potential outperformance of North Asia, said Raychaudhuri.