Although the coronavirus is not expected to stop India’s structural growth, it will impact global growth in at least the first half of 2020 and therefore India’s growth, India Avenue Investment Management said.
Investors should be reminded that even though India did not have significant links to the global supply chain (exports are only 11% of gross domestic product), it benefited when global growth was strong given comparative advantages in exports of refined petrochemicals/oils, gems/precious stones, textiles, electronics, pharmaceuticals and automobiles.
“As we have always articulated to investors, India is a market where you should build exposure during dire times as the structural story will outlast any cyclical events. It’s a matter of portfolio construction and investment horizon,” India Avenue said in a note.
“When it comes to satellite investments like investing in India, investors typically tend to sell during adversity and buy during euphoria.”
However, the virus still had potential to become the key risk for India, given it would make itself a home amongst India’s significant population of 1.3 billion and its potential for it to spread quickly, without appropriate healthcare systems and medication for all.
According to India Avenue, while it was hard at this point to estimate the potential damage to markets, there were some positives such as:
- US$475 billion ($730.3 billion) of forex reserves to defend the currency if required
- A substantial fall in the oil price which will reduce inflationary pressures in India (India imports over 80% of its oil usage)
- Central Bank potential to cut cash rates from 5.15%
- Fiscal stimulus likely to be forth coming
- Potential to replace China in certain aspects of the global supply chain, given most are now seeking diversity of supply. Foreign direct investment in India has increased significantly over the last 12 months (US$175 billion vs US$87 billion previous year)
“We think it is inevitable that India starts its recovery in in the 2H21 i.e. Sept 2020 onwards. It is not very often that you can identify an investment where you can buy quality growth stocks at P/E’s in the teens and cyclical growth for single digit P/E’s in a market like India. We are re-aligning our fund to go overweight in the both these segments,” the manager said.
