Why India ‘Doesn’t Look So Great’ To Julius Baer’s Mark Matthews

That’s largely because unlike China, India has failed to innovate within the modern economy, and produce brands like Netflix, Facebook, Google, etc. in the U.S., the head (Asia research) at Bank Julius Baer told BloombergQuint in an interview. Investors, according to the market veteran, are looking at those sectors as they seem to be the obvious ones to benefit from people staying at home.

The only company in India that comes close to it is Reliance Industries Ltd. which has its fingers into everything from telecom to content and e-commerce, Matthews said. The stock has gained 29% so far this year compared to an 11% drop in the benchmark Nifty 50 Index. Reliance’s share price is likely to grow even further, he said, as the company carves out Jio Platforms Ltd.—the technology asset of the Mukesh Ambani-owned company—and lists it on the exchanges.

The second problem for India, according to Matthews, is the country’s twin deficit — budget and trade — that made it difficult for the government to announce robust fiscal and monetary packages to help the economy amid the pandemic.

Third is the “sheer weight of the population” which makes it next to impossible for citizens to maintain social distance, he said.

Still, there is one thing that could be going well for India. While it may be “slightly premature to tell,” a slow and gradual depreciation of the U.S. dollar over the next three years amid increased liquidity could benefit India’s economy and attract funds, Matthews said. Also, a vaccine for the Covid-19 virus may lead to a turnaround.

“Right now it doesn’t look good but who knows in three months it could look very different,” he said.

China’s Charm

Since the virus spread across the world, one of the universal conversations — more so in the U.S. and India — has been that of reducing the global supply chain’s dependence on China. Matthews, however, isn’t convinced that the uproar will lead to a significant change.

The trade war between the U.S. and China created similar worries with hundreds of experts researching and talking about the possible consequences, only to find that it wasn’t the primary driving force for the markets, he said. Even now, China is the single largest opportunity for investing into new economy stocks apart from the U.S., he said.

Despite being the origin of the virus, Matthews said, the country has managed the spread well and even bounced back to an extent.

“Money is unemotional and it will go wherever the returns are the highest... So absolutely, foreign money is really interested in that.”

The only way this preference will change is if the U.S. puts strict sanctions on investors buying new economy stock in China. Matthews pegs a 50% probability to that happening.

Watch the full conversation here: