India Rally Even as Virus Surge

India is attracting all the global attention for the worst virus outbreak but the pandemic has done little to dent the confidence of overseas investors who are betting on a strong rebound.

India’s benchmark S&P BSE Sensex stock index has declined about 4% from a mid-February peak, outperforming an MSCI Asia Pacific gauge which is down more than 7%. Global funds pulled $1.5 billion from the nation’s equities in April, versus $8.4 billion when the pandemic raged in March 2020.

Why?

1. Portfolio managers are attempting to navigate India’s pandemic by focusing on the nation’s long-term growth prospects, with consumption expected to drive a recovery once the virus crisis passes. Short-term investors will be compelled to step aside, but long-term oriented investors understand the opportunity.
2. India’s stock market “possesses several structural growth opportunities that we do not expect to be dramatically altered by the current virus surge,” said Jeff Kilkenny, portfolio manager at Principal Global Equities. Infrastructure, personal mobility and insurance are among the attractive sectors, he added.
3. Investors also like the rupee. The currency has rebounded to become Asia’s best performer in May from its worst in April, and BlackRock Inc. expects it to remain supported as slowing growth shrinks India’s imports and helps shore up the current-account balance.
4. Sectors linked to ESG or renewable “will continue to be very supportive by global investors,” said Freddy Wong, head of Asia fixed income at Invesco. “They will always get access to funding and the revenue streams tend to be very stable, and that’s where a lot believe the pandemic impact on those renewable or utility-related companies will be limited.”
5. Dollar-denominated credit is another area of interest. BlackRock is of the view that investment-grade issuers including quasi-sovereigns and conglomerates will be less impacted by the drop in consumer confidence and spending, according to Neeraj Seth, head of Asia credit.

Reference:

Bloomberg, 2021-05-24, “BlackRock Joins Funds Betting on Indian Assets Amid Outbreak”