Asia Bargain Hunters Are Targeting Stocks in Slowing India

(Bloomberg) -- Stock bulls scouring for opportunities in Asia during the coronavirus pandemic are eyeing India as a destination offering a mix of subdued prices and potential to play catch-up to other markets in the region.

While valuations on the broader benchmark MSCI Asia Pacific Index have begun to approach their pre-virus levels, India’s S&P BSE Sensex Index trades at about 19 times earnings, well below its peak of about 30 times in December. The gauge, which gained as much as 1.3% Wednesday, has rallied 17% from its March low, trailing the regional benchmark’s 22% advance during the period.

And global investors, who hold considerable sway over India’s $1.6 trillion market, aren’t waiting for the rebound in local shares to gather pace. The nation has lured the only foreign inflow among major Asian markets in May, after suffering withdrawals of more than $8 billion over the past two months in the wake of the virus-induced sell-off.

Having said that, it is too soon to sound the all-clear. The headlines continue to bring in a barrage of bad news, from a surge in infections and widespread unemployment to fears of another wave of the virus as Asia’s third-largest economy gradually exits the world’s strictest lockdown.

Goldman Sachs Group Inc. warned earlier this week that India will suffer its deepest recession ever. Real gross domestic product may shrink by 5% in the 2021 fiscal year, which would be deeper than any other recession the country has experienced, economists Prachi Mishra and Andrew Tilton said.

While the government has unveiled a $265 billion rescue package amounting to about 10% of GDP, economists and equity strategists estimate the additional spending represents only about 1% of GDP and a far bigger stimulus is required to revive the economy.

The apparent dichotomy between bad news on the economy and optimism about local equities isn’t dissuading the bulls. The reason: the negative sentiment is in the price.

“Prices have gotten so attractive now that anyone who can look beyond the next six to 12 months will ignore the near-term news,” said Gautam Duggad, an analyst at Motilal Oswal Securities Ltd. in Mumbai.

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