Indian markets have held up very well amidst global volatility aided by a strong domestic investment cycle that has taken off after a very long time.
US bond yields have started creating second order impact in terms of rapidly rising MTM losses in banks’ books. Unhinged moves in yields need to be checked, lest they start creating third order impacts across other global markets.
Unlike the synchronized moves post covid, central banks around the world are following their independent paths, led by individual domestic scenarios. Higher for longer in the US need not mean similar positions in India.
Indian yields more likely to be influenced by inclusion of G-Secs in global bond indices starting with JPM. Likely inflows of $40 Bn over a 12 month period (JPM plus couple more) should be seen from the context of annual FPI flows being lower than $20Bn in all years except 2014 and 2017.Expect lower yields and therefore more valuation support for equities – good in short for bond, currency and equity markets.
Invesco India Focused 20 Fund is bouncing back well on performance over the last few months after a disappointing 2022. Positions in globally exposed sectors like IT hurt the fund in 2022 amidst a sharp global tech sell off in a rising interest rate environment. Shift in focus to domestic growth sectors including high end retail, industrials, defense have aided fund performance in 2023.
The fund’s performance revival comes despite the fact that the top 3 holdings (25% of portfolio) – namely HDFC Bank, Reliance and Infosys have been market underperformers. Taher believes that we should see lot more traction in stock performance in these three big positions in the coming quarters, which should keep fund performance healthy going forward.
Taher is bullish on pharma and healthcare, which are coming out of a multi-year underperformance phase. US generics prospects are looking up, domestic pharma continues to grow steadily and healthcare (hospitals) looks exciting.
IT services is another sector Taher is betting on – deal flow announcements are healthy signifying that Indian IT companies are perhaps gaining market share. Cost optimization contracts from Fortune 500 companies are increasing – an area of particular strength for Indian IT companies.