- Impact of higher crude prices in India growth story
- Where is the #rupee headed?
- Outlook on Q2 earnings
In conversation with #StandardChartered's Manpreet Gill. #BQLive
- Where is the #rupee headed?
- Outlook on Q2 earnings
In conversation with #StandardChartered's Manpreet Gill. #BQLive
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NewsTranscript
00:00 >> Thanks so much for joining on Talking Point today.
00:02 I'm your host, Neeraj Chowdhury.
00:03 Our guest today is Manpreet Gill of Standard Chartered.
00:05 Manpreet, great having you.
00:06 Thanks for taking the time out.
00:07 >> Thank you.
00:08 Thanks for having me on.
00:09 >> Well, you are kind of in the hotbed of activity currently, Manpreet.
00:15 And there's one question that is going out to all risk asset watchers is whether the
00:23 geopolitical news flow, be it what's happening between Israel and Gaza or, well, we've heard
00:30 this morning that Vladimir Putin is in China and that axis with all the Russia versus the
00:37 West, how big an event it is to append the positive momentum that had come back into
00:45 risk assets, particularly equities, in the last four, five months?
00:49 >> Well, indeed, I think we're living in a particularly geopolitically charged world.
00:55 But I think what's important here and, indeed, with every geopolitical event is to remember
01:00 that financial markets ultimately have a narrow view.
01:03 So many of the events you describe, of course, very significant from a political standpoint.
01:07 But the question we always ask ourselves is what's the channel back to financial markets?
01:13 And how significant is it that that channel gets activated?
01:16 So if I take the history of Middle East conflicts, for example, the vast majority of them over
01:20 the past five to six decades had largely no impact on financial markets, including on
01:25 oil prices.
01:27 And the reason for that is if you think about conflicts that involve Israel and its neighbors,
01:30 for example, they didn't really involve a significant interruption of oil supplies.
01:35 Now, there were some conflicts that did, like the Gulf Wars, and we did see a reaction in
01:40 markets.
01:41 But for us, that's really the key.
01:43 And I think if I think about some of the events you've described, at the moment, at least,
01:47 we don't see a significant lasting impact of markets to the oil price channel.
01:51 But of course, there are several scenarios we're sort of putting around this.
01:54 And I think that's whether we escalate within those scenarios is, I think, one of the key
01:58 things to watch.
01:59 OK.
02:00 Seter is paribus, assuming that this doesn't escalate too much.
02:04 Am I to take it that you have constructive equities currently?
02:09 So we sort of, in the short term, we could argue, yes.
02:13 So I think overall, we have sort of a core holding view on global equity markets.
02:18 And I think more constructive in some regions and sectors than others.
02:21 I think we're sort of going through some seasonality.
02:23 September was poor.
02:24 We think seasonality will improve as we go into year-end.
02:27 If we start to get positive earnings growth in the US earnings season, for example, I
02:30 think that will start to put a little bit of floor in the short term.
02:33 But our preference, of course, is to pick one's regional bets.
02:37 So as opposed to US equities, which remain the dominant market globally, we'd rather
02:41 own Japanese equities, for example.
02:43 Similar cyclical exposure, but a much cheaper starting point.
02:47 But I think that's more sort of a view over the next couple of months.
02:50 I think the big looming question for us still is, how much does economic growth in the US
02:55 and globally slow after all the interest rate hikes?
02:58 And indeed, the fact that bond yields are now a little bit higher than the earnings
03:01 yield on the S&P 500, that I think is something which is why, longer term, we still prefer
03:06 high-quality bonds relative to equities.
03:09 Wow.
03:10 OK.
03:11 So how short is the short term?
03:12 How long is this long term?
03:13 My question really is, from an Indian market watcher's perspective-- and let's assume that
03:20 the average investor maybe has marginal investments in the US, can't buy into Japanese equities
03:25 per se, and is trying to figure out whether it's worthwhile to hold on to Indian equities
03:29 currently, or can one make a tactical call simply because there might be a bit of a risk
03:34 off, there might be a beeline towards bonds because of safe haven, so on and so forth.
03:38 Is there any view there?
03:40 Yes.
03:41 And I should have been more specific on the time horizon.
03:44 I think when we're talking about short-term, we're really looking at the next couple of
03:47 months from now till about the year-end.
03:50 I think that some of the bigger questions start coming through on growth in 2024 by
03:55 mid-year, 12 months or so out.
03:57 I think Indian equities, though-- or Indian markets, rather, are in a more interesting
04:01 point because our view is that it's a good time to have a balanced exposure between equities
04:06 and bonds.
04:07 We're holding on both sides, taking more sector picks, corporate bond picks alongside
04:13 government bonds.
04:14 So it's about diversification.
04:16 The reason is that, look, Indian equities can't be immune if we get volatility in global
04:21 markets, but we think they are in a better position, clearly.
04:24 The growth outlook is incrementally better than what we've seen elsewhere in the emerging
04:27 world, arguably even a large part of the developed world.
04:30 But we can't ignore the fact that bond yields on G-Secs are actually quite interesting as
04:35 well.
04:37 And if anything, there are inflation pressures, but perhaps not as significant as what we
04:40 see in the US.
04:41 So incrementally, I think a better place to be compared to what I described on US markets.
04:46 But I think it's a great time to be diversified.
04:49 We would expect some volatility, but that volatility is what we use not only on the
04:54 equity side, but also on the bond side.
04:56 A clutch of investors and fairly accomplished blue-blooded names I'm talking about have
05:05 this opinion that there could be a possibility that India is viewed as an oasis of calm,
05:12 as a pocket of certainty in an uncertain world, and therefore all the troubles around us might
05:20 actually work to India's advantage both in terms of flows, also keeping in mind that
05:26 the domestic flows are so strong that now foreigners know that they cannot wait for
05:31 an overextended correction in Indian markets to take advantage of, as used to happen maybe
05:38 a decade ago.
05:40 Any thoughts?
05:41 Well, I think from a macro perspective, absolutely.
05:46 I mean, when you think about, as I described, economic growth, the outlook and current conditions
05:51 in India do look a lot better than what you can find in the region and indeed in a large
05:56 part of the world.
05:57 India is something to pay attention to, but perhaps not as much alarm as elsewhere.
06:02 And there are many other indicators you can point to.
06:04 The quality of bank balance sheets, for example, there were challenges some years ago, today
06:08 perhaps not as much, which is another stark contrast to the rest of the world.
06:13 I think what we're trying to balance that is versus where's the valuation starting point
06:18 for equities and how much correlation or how much can the correlation or the breakdown
06:22 between global asset clusters and domestic ones.
06:25 So I think, look, there's a strong case.
06:27 I'd agree for markets potentially to be less volatile.
06:31 We have some volatility elsewhere.
06:33 I think Indian equities have benefited a lot, for example, in weakness elsewhere in Asia.
06:36 I think that sort of helped a lot from an international investor perspective.
06:40 Domestic flows, as you described, continue to be very strong.
06:44 But we wouldn't go out there with the starting assumption that the correlation between Indian
06:49 equities and the bond would completely break down should we see a sell-off in US equities.
06:54 That correlation might be a lot lower than it has been in the past.
06:57 That's reasonable.
06:58 So I think it's more about surviving the journey.
07:00 And that's why, look, unlike the US, it's not that we're saying, oh, we overweight bonds
07:04 relative to equities in India.
07:05 In fact, that's part of the reason why we think a balanced exposure makes sense.
07:09 We're less worried about equity markets in India relative to the US.
07:12 That suggests volatility.
07:13 Any volatility would be a great example to add exposure or continue some sort of systematic
07:18 investments.
07:19 But we don't want to miss the opportunity that today's bond deals are providing either
07:22 because for income-oriented investors in particular, whether in India or elsewhere, we seem to
07:27 be closer to high bond yields.
07:29 And that's not a bad time to lock in some yields for the next few years.
07:33 Got it.
07:34 By the way, sorry, so just wondering, just to probe that point in little detail, how
07:42 significant do you reckon this JP Morgan bond inclusion would be overall in the larger scheme
07:47 of things?
07:48 And also, also that if one has happened, and maybe some of the other global indices also
07:55 follow suit, and can that happen?
07:57 And will that be material?
08:01 So I think it's interesting when you're thinking multi-year.
08:03 I think, you know, we've looked at examples of index inclusion of other markets in the
08:09 past.
08:10 And I think you tend to see that harder to trade around because you tend to see the impact
08:14 of those built in before the inclusion.
08:16 But I think where they start to become interesting over a few years is that you start to get
08:21 more sustained flows, you start to see lower volatility, you start to see more of a cap
08:27 and a long-term sort of downtrend in the level of bond yields.
08:31 And these are incremental relative to where they would have gone otherwise.
08:35 But I think in all those sort of conditions, you do improve the outlook.
08:38 So when you're thinking of building portfolios with combined equities and bonds, this I think
08:43 is a big positive.
08:45 It does mean that the risks of foreign investor flows having a greater or disproportionate
08:51 impact when there are global volatility.
08:53 But small dollar risk off goes back a bit more than issue.
08:56 But I think the benefits outweigh the costs.
08:59 Great.
09:00 Final question, Manpreet, on Indian equities per se.
09:03 So there are various pockets.
09:05 And I know you may not have a complete handle on the mining ship because you look at Asia
09:09 largely.
09:10 But still, by virtue of your earlier interest or current interest as well, I'm just trying
09:14 to understand what pockets look interesting.
09:19 I'm getting various views.
09:21 So banks, for example, haven't done anything in the last 6 to 9 to 12 months in terms of
09:25 stock market performance per se.
09:27 But the fundamental numbers seem to be decent.
09:31 At the same time, IT is facing the challenge of lower guidance in the near term, but maybe
09:39 a turn of events, if not from 2024, then maybe 2025, that might start getting discounted
09:46 after the first half of 2024 as well, calendar year 24.
09:51 Just trying to understand how are you thinking about some of the large pockets within the
09:54 Indian equity landscape.
09:57 So I think for us, we are very fundamental driven investors.
10:00 And I think what you described on banks is something we really do subscribe to.
10:03 Because I think, obviously, you described how some of the numbers are starting to look
10:08 interesting.
10:09 And what you discussed on the bond yield side is actually also a great environment for banks
10:13 as well.
10:14 And the growth angle, of course, is still very much there.
10:17 So I think that's really what I subscribe to.
10:19 I understand the frustration of not having gone anywhere.
10:21 I think that's partly because in India and elsewhere, we've been more of a trading environment
10:26 as opposed to one driven directly by long-term fundamentals.
10:30 But in our view, fundamentals ultimately dominate.
10:32 And I think a combination of strong results and higher bond yields, steep yield curve,
10:38 those are all positives.
10:40 I think that's one pocket we subscribe to.
10:41 I think we talk about more cyclical sectors like technology.
10:44 Look, to be honest, this is something we find interesting.
10:47 We just rather wait for an opportunity to pay a better price.
10:52 Evaluations do come up even to some degree.
10:54 I think that's something we'd be keeping on the radar.
10:56 But for us, more of a foreholding at the moment, perhaps not the pocket we'd be allocating
11:00 the largest number from a sector perspective.
11:02 So I think a couple of themes over there, but really looking at where the fundamental
11:06 signals are and just staying the course.
11:08 And banks, of course, great example of that.
11:11 Got it.
11:12 Manpreet, great having you.
11:13 Thanks for taking the time out and speaking to us today.
11:15 And look forward to talk to you more often.
11:18 Thanks very much for having me on.
11:19 The pleasure was ours.
11:20 And viewers, thanks for tuning in.
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