Indian equities topmost game in Asia; expect RBI to maintain easy monetary policy: BNP Paribas

India has been outperforming all throughout this year, but the outperformance has become more pronounced in this quarter, said Manishi Raychaudhuri, Asian equity strategist, equity cash Asia Pacific at BNP Paribas.

Raychaudhuri said, “If you look at the July-September quarter, India has been outperforming all throughout this year, but the outperformance has become more pronounced in this quarter. In this quarter, it seems like the Indian equities are not only the topmost game in town as far as Asian equities are concerned, they are possibly the only game in town. I think there are both regional and domestic reasons behind this.”

He further said, “It looks like the RBI would be in a position to maintain easy liquidity for longer. The most recent CPI inflation data reaffirms that. We are also seeing relentless earnings upgrades, if one looks at the last six to nine months, Indian consensus EPS estimates both for 2021 and 2022 have been upgraded almost about 8 to 10 percent across a wide swathe of sectors, more so in energy, materials, some in consumers, some in IT services, that's another strong area of upgrade but it is possibly just the top two or three markets in Asia, which have had that benefit.”

Cautious on Indian market; negative on all PSU banks barring SBI: Geosphere Capital

On the financial space, Raychaudhuri said, “We are actually quite positive on the Indian financial space, our weight predominantly is still on the private sector banks, but having said that, and I made this point about a month ago, we have dipped our fingers into a public sector bank, just the top most large PSU bank in India. We also are playing NBFCs and insurance companies but through the market-leading mortgage lender.”

On IT, he said, “IT is another area in India we are quite bullish on. The frontline IT companies are making humongous gains as far as new orders from the Western countries are concerned. So, one has to play back that universe also. So, both these sectors are the silos that we like in India.”

On bad bank, he said, “We are also positive about this bad bank creation. We think that it would free up capital as far as the Indian banking sector goes, and there would obviously be a degree of differentiation as to the quantum of benefit that goes towards different banks. But on the whole, we are quite positive about this development.”

On how to approach stocks, Raychaudhuri said, “I think there is a degree of exuberance that we are seeing, in fact, some of those are possibly trading at pre-COVID valuations or maybe even higher than that. So, I think investors would have to be careful in that space. I mean, there is a case to be made for some tactical exposure to the reopening place. But at the same time, if one notices companies which are trading at significantly higher than pre-COVID levels or pre-COVID valuations, then I think there is a case to be made or being slightly cautious on those names. I can't obviously comment on individual stocks, but that is how we are trying to approach that particular space.”