Maintain overweight stance on India; bullish on top life insurance cos, select NBFCs: BNP Paribas

“In our Asian model portfolio, we continue to remain overweight on India. We upgraded India to overweight a few months ago and we are sticking with that chance for now,” said market expert Manishi Raychaudhuri, Asian Equity Strategist, Equity Cash Asia Pacific at BNP Paribas, in an interview to CNBC-TV18.

He further mentioned that BNP Paribas is playing the top-rung insurance companies, that is life insurance and NBFCs as well, mostly through mortgage financials. “We do have a broad swathe of stocks in our modern portfolio as far as India financials are concerned. In some cases, particularly for the private sector banks, the valuation argument is not exactly, possibly valid right now. But at the same time, we must also remember that in India, quality always comes at a price. High-quality compounders over the long term would not really be cheap in India, and it's something that investors are also coming to terms with,” he said.

On the market's recent run and pullback, he said, “This short-term pressure that we are seeing in the market is natural, given the supersonic rally that we had seen over the past few months. India this year, has been by far the best performer among all Asian markets.”

“Now the valuations are beginning to look a little frothy. That said, I must also point out that earnings estimates are also rising and that is happening across a vast swathe of sectors. It is partly due to the sharper than expected economic recovery post the second COVID wave and also partly to do with the expectation of an investment cycle coming back at some point of time,” he said.

“While we could see a correction in the near-term, for long term investors, staying invested in this market could be a viable strategy,” Raychaudhuri said.

On valuation comfort spaces, he said, “In our Asian model portfolio on the India side, we do have a very strong presence in financials. While historically, we have always had a concentration in the private sector banks, mostly the retail-focused private sector banks over the past few months, we have incrementally moved somewhat into the industry-focused private sector banks, the corporate lenders as well and we have dipped our fingers into public sector banks.”

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On reopening plays and discretionary space, Raychaudhuri said, “In the reopening plays, investors would have to be a bit selective because many of these have bounced back very sharply. But we must also remember that for many of these discretionary consumption plays, if we are talking about the consumer durables where there's manufacturing involved, there's also that compounding margin pressure that is arising because of this hike in commodity prices that we have seen.”

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“As far as consumption services are concerned, the conclusion is that the investment thesis could be a bit stronger over there. If an investor is mindful about valuations there, there can be a decent set of stocks that can be selected,” he said.

“In the case of India, since it is a large domestic consumption market, pure domestic consumption can lead to some of these reopening plays outperforming. But again, it's possible that consumer services might do relatively better compared to consumer discretionary. The manufacturers, also investors would have to be mindful about valuations,” Raychaudhuri cautioned.