According to this view by JP Morgan, Emerging Markets are expected to see a strong rebound in the second half of 2020, but India may not be an active participant.
While the investment bank is not negative on India, the country doesn’t feature among its favourites based on rebound in PMI and valuations.
In the first six months of this year, financial stocks were the biggest laggards. ICICI Bank, HDFC Bank, HDFC, Axis Bank and IndusInd Bank were the ones that dragged the Nifty down. The Nifty PSU Bank showed a return of -43.3%. Pharma has performed exceptionally well.
Annalisa Esposito from Morningstar’s London office spoke to Ramesh Mantri of Ashoka India Equity Investment Trust and Sukumar Rajah of Franklin Templeton, for their views.
Supply Chain Disruption
India displays many of the characteristics that make investing in emerging markets so appealing including strong economic growth, a young population and increasing wealth.
Ramesh Mantri believes that a major turning point was the election of its prime minister Narendra Modi, who has introduced sweeping reforms, helping to incentivise the creation of new businesses. Many of these have the potential to upset the supply chain as manufacturers look to diversify the production of their products away from China. It's a trend that has been further intensified by the pandemic.
“While China is losing momentum, India is gaining it,” Mantri says. “India is emerging as the second largest smartphone manufacturer and large electronic companies such as Apple are moving their operations to the country. This trend has exploded in the last two years; it has grown by 20 times.”
- Stock Mantri favours: Dixon Technologies, India’s largest electronic manufacturing company.
IT & Telecom
The pandemic has accelerated some secular trends and these sectors have particularly benefitted from this. There has been a sharp increase in people working from home and businesses relying heavily on tech-based services including cloud storage, video conferencing and automation.
- Stocks Mantri favours: His portfolio maintains a significant exposure to the sector and he owns Bharti Airtel, one of India’s leading telecom operators. It is a New Delhi-based company that operates in 18 countries across South Asia, Africa and the Channel Islands.
- Stocks Rajah favours: Tata Consultancy Services and Infosys. TCS is the largest Indian company by market capitalisation, while Infosys is a global leader in next-generation digital services and consulting, enabling clients in 46 countries to navigate their digital transformation.
Pharmaceuticals
Pharma companies remain a key driver for India, as was the case before the coronavirus outbreak. “Much like IT, India is a global powerhouse in the generic pharmaceuticals sector, and could emerge as a key manufacturing base for a potential Covid-19 vaccine,” says Mantri.
- Stocks Mantri favours: Ipca Laboratories, one of the world’s largest producers of Hydroxychloroquine, a medication used to prevent and treat malaria. Cipla, which develops a range of medicines to conditions including arthritis, diabetes and depression.
- Stocks Rajah favours: Dr Reddy’s Laboratories and Narayana Hrudayalaya, a chain of multi-speciality hospitals, heart centres, and primary care facilities with its headquarters in Bengaluru.
