As India readies to vote in less than two weeks to elect a new government, emerging markets equity strategist Adrian Mowat says a change in administration is only a modest factor for an economy like India.
“Indian economy is a huge juggernaut and it tends to keep growing on its own momentum. The impact of earnings or change in administration are too modest factors to alter that,” Mowat told ETNOW in an interaction.
He, however, warned that the equity market may witness some downside if the election delivers a hung Parliament. But a change in the administration will also provide a buying opportunity for investors, he said.
“There is no correlation between FII flows and election outcome. If we have a surprise in this election, I will definitely see it as a buying opportunity. I dont think the election is a risk to ETF flow. India is an economy which will continue to benefit from reforms that have been put in place by the current government,” Mowat said.
He said there is scope for PE expansion in India. The market is factoring in the base case that the present government will retain power, he said.
Equity benchmarks Sensex and Nifty are currently hovering at their all-time high levels. But Mowat called it a stock-specific rally.
“Portfolio managers are surely adding existing stocks which they like, instead of going for big India macro trade,” he said.
On sustained flows from foreign institutional investors (FIIs), Mowat said India is joining the broad emerging markets rally. “Inflows from FIIs, particularly in ETFs, are particularly strong in emerging markets and India is getting its share of that. It is more of an emerging market trade, rather than only India,” he said.
FIIs infused more than Rs 51,000 crore in February and March after being net sellers of shares worth Rs 4,262.01 crore in January.
Mowat said for a sustained move in stocks, what is needed is dovish central banks combined with improvement in macroeconomic data. “This will give confidence to market participants that 2020 will not be a year of recession. If that comes, then global markets will continue to trade higher and India will also participate in it.”
“We have to look at high-frequency macroeconomic data in order for the market move higher,” he said.
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