Vetri Subramaniam, CIO of UTI AMC believes India’s underperformance with respect to China and the rest of the emerging markets (EMs) may continue as these markets have got a leg up over the last two to three months.
In an interview with ET Now, Subramaniam said that around October-November 2022, we saw some of the markets with maximum cyclical pressures and they had de-rated quite significantly. Those markets have got a bit of a leg up over the last two to three months.
He underscored that while India's structural story remains intact, bonds have started to challenge equities.
"The bigger challenge for equities is coming from the fact that for the first time in more than a decade, bonds are starting to figure in asset allocation plans," said Subramaniam.
"For the first time, asset allocators across the world are actually starting to find interest rates a reasonable alternative within their portfolio and to my mind, that is creating a bit of a drag in terms of allocations to equities in general. The flip-flopping of cyclical moves will keep happening but there is a reasonably strong undertone in the way foreign investors and certainly domestic investors look at India and its structural prospects and I do not see that changing anytime soon," he told ET.
Subramaniam told ET that there are three legs to think about the current market - de-rating of asset prices, risk to earnings and financial risk - and we are in the second leg of it.
"We are in the second leg of what started in early 2022 where we have to worry about what it means for earnings growth and there is a risk to earnings estimates from everything that is happening," said Subramaniam.
He said as the central banks intend to cool down the economy and fight inflation, this obviously means slower growth.
"Look at India; we have got slowing growth compared to last year based on the government forecast," Subramaniam said.
"When all economies start slowing down, we have to start worrying about the second leg of what it means, which is not only asset prices getting hit by interest rates but real growth and earnings starting to get hit by much tighter monetary policies," Subramaniam told ET.
Disclaimer: This article is based on an ET Now interview (Part 1 & Part 2). The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
