India’s outperformance in 2Q and 3Q so far is underpinned by strong economic and corporate top-line growth, a policy-driven recovery in investments, expectations of a manufacturing surge driven by global supply chain de-risking and the stability provided by robust domestic flows to stock market liquidity, says Manishi Raychaudhuri, Head of Equity Research, Asia Pacific, BNP Paribas.
Valuations remain expensive but the relative lack of risks should sustain them for now, the report said.
A 55bps spike in the US 10-year bond yield, triggered by a combination of FOMC’s hawkish commentary and BOJ’s relaxation of the YCC, boosted the USD and put paid to the nascent recovery in Asian equities.
The gap between Asian earnings yield and the US bond yield is near its lowest – implying a likely period of lacklustre drift in the former, the report said.
A sharp slowdown in Chinese economic momentum, continuing trouble for the leveraged frontline property developers and underwhelming policy stimuli are not helping either.
The only silver linings are the recent EPS-estimate recoveries in Korea, India and pockets of ASEAN, it added.
“We raise exposure to India through ITC, a relatively cheaper but high-quality consumer staples play likely to benefit from its recent business restructuring,” BNP Paribas said.
“Our overweights on HK/China and India continue, though slightly more so on the latter. Despite recession concerns in the US, we think Korean tech should be supported by a likely trough in the memory cycle.”