'Indian equities are not a bargain buy at the current levels'
Business Standard's Puneet Wadhwa speaks to Dan Fineman, Co-head of APAC Equity Strategy at Credit Suisse on the extent to which the markets are pricing in the negatives, and his investment strategy
Q-- You recently downgraded India to underweight citing rising oil prices. But don’t you think Indian equities could be a contrarian bet from a medium-term perspective given all this pessimism?
>FIIs have been selling in India
>Contrarian strategy works best when valuations are cheap
>Indian stocks still very expensive relative to the rest of the region
Q—What are your return expectations from equities as an asset class in 2022? What about the Indian stock market?
>Turned cautious on global equities; stance cut from ‘overweight’ to ‘benchmark’
>Russia-Ukraine war, rates, wage pressures are key concerns
>2022 will be a weak year for global equities
>Tough year ahead for Indian equities
Q- Foreign investors have dumped Indian stocks since October 2021 like there is no tomorrow. Is the worst of the selling over, or are they catching their breath before the selling resumes?
>FII selling will remain a problem for Indian equities
>Still a lot of foreign money in Indian equities
>Rich valuations, too, a concern; Indian equities most expensive in Asia
>Indian equities are not a bargain buy at the current levels
Q- So which regions are a bargain bet right now?
>South East Asia tops the favourite list
>Indonesia, Singapore, Malaysia, Thailand look good
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>Overweight on Chinese equities
Q- For 2022, will the net exporters of commodities are a safer place to be in?
>Good to have a position as a hedge in such markets
>Do not over-expose in commodity-related plays
Q6- The US Fed rate turned out to be somewhat of a non-event for the equity markets, including India. Are the global markets worrying too much about the global central bank action?
>US Fed way ahead of peers
>Asian markets to closely watch the US Fed’s moves
>Bond yields likely to inch up
Q- Your view on global growth in the coming quarters? Is India at risk of a downgrade from the rating agencies in the backdrop of a possible worsening of macros as oil prices rise? Are the markets still oblivious to this?
>Global growth will remain mostly on track
>Russia – Ukraine issue to hurt Europe
>US is relatively safe
>Rating agencies may not take any India-specific decision
Q- Given how the global markets have bounced back, are they fully pricing in the worst as regards the Russia – Ukraine geopolitical issue and its impact on commodities, and especially crude oil?
>Markets have fairly discounted the geopolitical situation
>Likely to remain choppy
Q- What policy response do you expect from the Indian government in the backdrop of the current global developments? Do foreign investors feel that’s lacking and hence the nervousness?
>Govt and RBI in a tough spot
>Hard to provide fiscal stimulus
>Inflation, demand moving in different directions making things difficult for policymakers
Q- Have you tweaked earnings forecasts for India Inc for fiscal 2022-23 (FY23) in the backdrop of the rising fuel prices?
>EPS forecasts have been flat since Q3-FY22
>Potential for upgrades from a three-year view if we can get past the high oil price period
>See downside in the immediate term; there are risks to the EPS forecasts
Q- Overweight and underweight sectors?
>IT services a favourite
>Will look at domestic economy facing sectors (banks, infra) post the uncertain phase of oil prices
Q- To what extent will the companies be able to pass on the hike in fuel prices?
>Traditionally, consumer companies have been able to pass on higher input costs
>FMCG stocks will underperform due to inflationary pressures
Q- Do you think the sharp rise in commodity prices is more a result of speculation rather than a demand- supply issue?
>Bit both; there are supply issues as well
>Taking Russian supplies off the market is bound to have an impact
Q- What’s your advice to investors in the current market?
>Time to remain cautious for those who are not diversifying into other markets
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First Published: Mar 25 2022 | 8:00 AM IST