ETMarkets Smart Talk: Nitin Raheja of Julius Baer India explains why FIIs can’t ignore India for long

“India would continue to be one of the fastest growing economies globally which would mean from an FII perspective it is a market that they cannot ignore for long,” says Nitin Raheja, Executive Director, Julius Baer India.

In an interview with ETMarkets, Raheja said: “The resilience of Indian markets to absorb global shocks as well as superior earnings growth and narrowing valuations will bring FII back into the equity markets in FY24” Edited excerpts:

What is your take on our markets as we step into FY24 — do you see any fresh record highs in the offing?
For investors, FY24 has carried with it the alarm bells of a possible global slowdown, inflation, and rising interest rates from the previous fiscal year.

I believe that the first half of FY24 will also continue to remain challenging with the present time/price consolidation phase continuing.

However, as we enter the second half and earnings growth starts catching up the markets would look more attractively priced and could see new highs happen.

Although the recent International Monetary Fund (IMF) data suggests a cut in our growth forecast, India will remain one of the fastest-growing economies. Will that lure Foreign Institutional Investors (FIIs) back into our equity markets in FY24?
The fact that despite a cut in growth estimates India would continue to be one of the fastest-growing economies globally would mean from an FII perspective it is a market that they cannot ignore for long.

The significant premium that the markets were training vis-a-vis its Emerging Market (EMs) peers was proving a deterrent for FII’s to further allocating flows to India. However, the time/price correction of the last 18 months has reduced the India valuation premium.

The resilience of Indian markets to absorb global shocks as well as superior earnings growth and narrowing valuations will bring FII back into the equity markets in FY24.

As 2023 marks the national pre-elections. Do you see capex-heavy infra stocks remaining in the limelight? What does history suggest?
History suggests that benchmark indices display relatively good performance in the pre-election year.

The only instances when Nifty delivered negative returns were during the unstable political scenario in India in 1995 and 1998 and the global financial crisis in 2008.

Given that the government has upped its spending on infrastructure in the budget shows that it is relying on infrastructure to drive the GDP in the near term.

Hence, we do see capex-heavy infra stocks remaining in the limelight. However, by and large, given the complexities involved in the business, these stocks have not created long-term wealth.

Hence, we prefer to invest in the sector with a bottom-up approach with our bias being more towards the engineering companies in the sector.

Although the opening of new demat accounts has reduced, SIP flows crossed Rs. 14k Cr for the first time in March – a big feat for the Mutual Fund industry. What is fuelling this optimism?
In India, a rise in investor awareness and digitisation has led to an increasing number of investors moving away from traditional investments, such as physical assets or fixed deposits in banks, towards investing in financial assets.

Hence, we see that despite the ongoing selling from FIIs over the past few quarters, Indian markets have been resilient mainly due to domestic inflows.

Moreover, the global pandemic along with low-interest rates over the past few years has driven Indian investors to consider equities as a vital part of their investment portfolio.

The gains they made during this period have given them evidence of the superior return profile of the asset class.

Furthermore, as most retail participants who enroll for SIPs do so over the long term, SIP flows continue regardless of market conditions. Hence, we believe that SIP flows will remain strong.

Are investors chasing the Crorepati dream via SIPs — where is the trend headed?
Clearly the superior long-term nature of equity as an asset class has been sold to these investors; and of course, who would not want to chase the crorepati dream?

I think the trend of SIPs over the long term will continue to ride an upward growth trajectory, though we might see short-term ups and downs.

What is your take on our June quarter earnings? Which sectors are likely to lag and which ones are likely to take the lead?
The June quarter earnings are going to be challenging. I believe that the top-line growth will be under pressure, while profit growth due to benign inflation will be better. Also, the consumer and IT sectors will lag, while the banking sector will be in the lead.

Besides these, we expect the capital goods, auto, pharma, and cement sectors to demonstrate strong earnings.

AMFI data shows that the number of women investors in the age group of 18-24 years has risen to 2,81,905 in Dec 2022 from 66,417 in Dec 2019. This is an encouraging sign. What is your take on this trend?
It is an encouraging sign, indeed. I believe this trend will probably accelerate as more and more women become financially savvy and enter the workforce.

How should investors play global markets in FY24? What is the kind of allocation amidst rising concerns of a slowdown?
The world economy is in a delicate state, with several indicators currently pointing to a global recession. In fact, the New York Fed’s recession model predicts a 54.5% possibility of a US recession in the next 12 months. While the situation may not be as bleak as the 2008 crisis, it looks largely unavoidable.

Given the uncertain economic situation, we advise investors to focus on building long-term wealth. This will prevent them from losing out as a result of short-term volatility. We believe that investors should buy equities in a cautious manner over the near 12 months.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of Economic Times)marke