Investors Have A Bigger Worry Than Uttar Pradesh Elections, Says BNP Paribas
Global macros and geopolitics, not state elections, are the factors that investors are watching, says BNP Paribas.
Global macros and geopolitics, not state elections, are the overwhelming factors that investors are watching, according to BNP Paribas.
"We started the year with a single point focus on inflation and the consequent action by the global central banks, particularly in the developed markets. Now, severe geopolitical tensions have been thrown into the mix," said Manishi Raychaudhuri, equity strategist-Asia Pacific at BNP Paribas.
Energy prices, something that is important for the Asian markets and India, in particular, have suddenly been "aggravated to a great extent", he said. This spike has the potential to not only "aggravate the current account and balance of payment situation, but also hurt growth".
In the past, elections in Uttar Pradesh, India's most populous state that sends most members to the Lok Sabha, would be viewed with a significant degree of interest by their international foreign portfolio clients, according to Raychaudhuri. This time, however, all questions remain focused on the impact of global macro and energy prices on India.
Still, he said, a sign of political and policy continuity in large states like U.P. is likely to be taken as a positive. The Bharatiya Janata Party retained the state with a smaller majority.
FPI Selling To Continue
Foreign investors have sold record Indian equities so far this fiscal.
"As long as we don't have visibility about how this episode of geopolitical tension is likely to end, it's difficult to foresee foreign portfolio investors coming back into India," Raychaudhuri said.
Their concern over India's valuation premium to the rest of Asia persists, he said. Even though the Indian market has declined, so have the other emerging and Asian markets. "The valuation premium is still almost at the same level."
Raychaudhuri said, “We might have to brace ourselves for this (foreign outflows) continuing, at least in the near term.”
Betting On Energy
Raychaudhuri suggests staying invested in traditional energy companies over the next two or three quarters. For the long term, over the next five to ten years, “renewable energy would be my focus,” he said.
"Many of the companies in India, unlike in China, are unlisted," he said, and that opens up a much broader space for the secondary market investors over a long period of time. "This is a space in India which would provide opportunities both for the private and the public market investors."
Watch the full conversation here: