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India To Remain Top Bet For Foreign Investors, Says BNP Paribas’ Manishi Raychaudhuri

Investments could revive in the next few quarters, said Raychaudhuri.

A track marshal waves a yellow flag during a Formula E Prix in Beijing. (Photographer: Brent Lewin/Bloomberg)
A track marshal waves a yellow flag during a Formula E Prix in Beijing. (Photographer: Brent Lewin/Bloomberg)

India will be the preferred bet for foreign investors as the decline in corporate earnings forecasts is slower compared with other Asian markets, according to Manishi Raychaudhuri.

“The drifting earnings picture is much less dire in India than North Asia,” the head of Asia-Pacific Equity Research at BNP Paribas told BloombergQuint. “From a foreign institutional investor’s perspective, these are the pockets (India and Indonesia) that are looking relatively less risky than North Asian countries which contribute nearly 70 percent of MSCI Asia Ex Japan Index.”

India’s consensus average earnings per share estimate has fallen only 7-8 percent in the last eight months compared with a 35 percent slump in South Korea and a 20 percent decline in China, Raychaudhuri said.

Investment Engine Warming Up

Investments, according to Raychaudhuri, could revive in the next few quarters. “We have witnessed capacity utilisation levels improve and investment plans come back to the drawing board once it reaches 80 percent.”

Raychaudhuri cited the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey which indicated the current levels at around 76-78 percent. The lower cost of capital, he said, will also trigger an investment cycle.

RBI has cut rates twice. Possibly they will cut once or twice more in the second half of this year. There is much more room to cut rates as India has one of the highest real interest rates among the countries having a similar credit rating.
Manishi Raychaudhuri, Head of Asia-Pacific Equity Research, BNP Paribas.

Other Highlights:

  • Difference between return on capital and cost of capital—a key determinant of investment decisions, to expand later this year or early next year.
  • Bullish on industrial companies, cement makers and capital goods manufacturers in the long term.
  • Consumer discretionary such as auto and household appliances should also be on investors’ radar in the long term.
  • India is a capital-efficient economy and companies are cautious on capital expenditure which is one of the reasons for valuation premium among Indian stocks—this theme isn't changing soon.

Watch the full interview here: