(Reuters) - Indian equities are likely to stand out in the months ahead, though they may not decouple from other markets globally, but the rupee's steep fall could limit foreign investors' gains, the top executive at Avendus Capital told Trading India on Thursday.
While India's NSE share index has risen only about 1% so far this year, that is much better than the 9% slide in the emerging market index and a near 30% tumble in the MSCI Asia, ex-Japan, index.
"Yes, it's been quite remarkable," said Andrew Holland, CEO of hedge fund Avendus Capital Alternate Strategies.
"And whilst I don't fall into the camp of decoupling, I think the negativity surrounding China coupled with (India's) high growth rates will mean India stands out."
Holland said foreign investors weren't necessarily negative toward India when they pulled out money from domestic stocks, but rather the withdrawals were due to redemption pressure in other emerging markets.
Though not overly concerned about the rupee's recent slide to record lows, Holland did say that India's rising trade and current account deficits along with its reducing import cover could continue to pile pressure on the currency.
"Also, FII's (foreign institutional investors) may see this as a potential hit to their gains," he added.
Avendus Capital is currently wary of investing in commodities and the Indian information technology sector as the global slowdown, especially in U.S. technology firms, will likely drag on domestic companies.
"IT is just not cheap enough. I like the banking sector, but the pecking order is continuing to change. Disruption is likely to be a big game changer for the industry," Holland said.
Holland expects global capital expenditure to be the next big theme both at the government and corporate levels, as they move away to China to alleviate supply-side problems.
He says Indian electronics can act as substitutes for China-made products, which should help the industry grow massively.
"I do expect SIP's (systematic investment plans) to continue to come to our markets. However, investors have other sources of returns given where interest rates are. So, debt will be very much a competing asset class over the next quarter or so," Holland said.
"We have kept a reasonably high cash level ... but kept our net exposures lower than normal given the high volatility on both sides of the market," he said.