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It would not be surprising if India takes a little breather: Bill Maldonado, HSBC Global AMC

In India, you need to differentiate and you need to analyse rather than just allocating top down.

ET Now|
Updated: Jul 15, 2019, 07.39 PM IST
Bill Maldonaldo, HSBC Global AMC-1200
If corporates do deliver a very strong earnings growth as expected, that could provide another leg up in the market for Indian equities, says Bill Maldonado, CIO, Asia Pacific, and Global CIO, Equities, HSBC Global AMC. Excerpts from interview with ETNOW.

How is the sentiment towards India as an investment destination?
The sentiment towards India is generally pretty positive from international investors. What has happened in India over the last few years which is very interesting is that India sort of became a safe haven investment when people were very worried about the global economy and were very worried about the Chinese economy.

One of the characteristics was very valued and the Indian economy was that; it was relatively less correlated to the world economy than other parts of Asia. So quite a lot of flows came into India when people were very nervous and that is really a very interesting scenario.

If I had said 10 years ago perhaps or five years ago that India will become kind of a safe haven investment, people might have found that a little difficult to understand but what has happened is we have to look at today in the context of the recent history. India has done incredibly well, the markets done very well, it has been very well supportive by international investors and again now there is a little bit less concern about the global economy.

Now that the Fed has pivoted towards this much more dovish stance and there is a little bit of consolidation in India, all the underlying fundamentals positives are there but perhaps people are not seeking that diversification so much at the moment and the market is a little bit on the expensive side, despite the very good fundamentals. So it would not be surprising if India takes a little bit of a breather here. The key thing is if corporates do deliver a very strong earnings growth as expected, that could provide another leg up in the market for Indian equities.

We have been coming off the back of a liquidity squeeze, slowdown with regards to private capex and of course the entire NBFC crisis. With that environment behind us, going forward you sound quite confident when it comes to earnings. Where do you see potential for growth that you are already seeing signs of?
Well there are two parts to that answer. The first part is to say I do not think we are necessarily being that bullish. I think that the negative news is over discounted in the market. With the concerns around the global economy, the concerns about the domestic economy are probably at this point over discounted in the market. So yes there are always risks out there. Those risks are real and they can materialise, but when they become over discounted relative to their importance, relative to their probability, that creates an opportunity for investors.

Number one we are saying that kind of opportunity exists in the market. Today, people have just been much too concerned about a global recession. Beyond what is logical, it is just over discounted. Second, locally there is very strong earnings growth expected.

The market would definitely receive that as good news and that is focussed on a number of sectors. For instance, the banks are a big driver for earnings growth. There have been some difficulties in the non-bank financial sector. There has been some kind of concerns around liquidity. We will have to see how that plays out in the earnings. I imagine we will get a continuation of what we have already had, which is quite a big difference between players in the same sectors with some players doing significantly better than others.

This is a market where you need to differentiate and you need to analyse rather than just allocating top down and saying this sector looks good. You are going to have to do more work than that. You really have to be confident of your picks within a particular sector.

Does that mean you are going to be spending more time here in India?
I love to spend more time here. I always love visiting India and yes we will see.

So there is a lot of talk going on with regards to what asset classes are looking more attractive given the current global dynamic. If you could just give me the lay of the land as you see it.
Yes, that is a very interesting question. It is quite a tough time for asset allocators. The first thing we would say is the traditional safety asset for most investors which is developed market government bonds. So German bonds, Japanese bonds, US treasuries, other developed market government bonds look very bad value at this point in the cycle. We would almost go as far as to say that versus an investment in cash, to us it looks as if you are almost guaranteed to lose and that is a reflection of how concerned people have been about a global recession.

So that is an area where you would under allocate as much as possible. So where would you allocate to? Well equities in general look good value. As I said US equities themselves do not look over valued, they look around neutral but there are other markets that look better.

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