1 hour ago
Prashant Paroda, Portfolio Manager, Emerging Markets, Allspring Global Investments, expects Indian equities to find support as the West Asia conflict remains paused and investors assume a solution is being worked on behind the scenes. He sees two-wheelers as a bright spot after a strong earnings season and believes some of the large Indian heavyweights could start performing towards the back end of the year.
Paroda is also adding to industrials while selectively evaluating small- and mid-cap stocks. He remains positive on auto ancillaries, even though some names have already run up, and sees defence as a potential next-level growth opportunity as large corporates enter the sector through new tie-ups.
This is an edited transcript of the interview.
Q: Would you concur that it seems to be more of the same when it comes to the West Asia? Resolution is deadlocked. In that sense, can markets look past the rhetoric and the fighting taking place in Lebanon? What's your view on what's happening, the fact that it's lingered on for so long, and what's the catalyst that can help markets break out of this consolidation trend?
A: It's clear to us from our perspective that both Iran and the US, at least, the fighting kind of has paused for now, and they are both looking for some sort of solution to this problem. Clearly, it looks like all the Iran terms are not being agreed upon, and so this might linger on for longer, for the next few weeks.
But as long as the fighting has paused from Iran and from the US, we think that equities will catch a bid, and people will assume that there is some sort of solution being worked behind the scenes.
Q: The flows picture with regards to India has changed a little bit, right? The last one-and-a-half to two months or so. How are you seeing it?
A: It seems like July was weak for Korea and artificial intelligence (AI) stocks, and as soon as it was weak, it looked like a lot of the sectors in India caught some bid.
So, people are still playing India as an opportunity if AI kind of stalls or has hiccups throughout, and a lot of these AI companies, sooner or later, we're talking about Anthropic IPOing as well now. They will all come to the market.
So, I think the picture will become clearer as these companies come to the market, of what the expectations are and what's being pencilled in by the market, and the market might look at other plays outside of AI as well.
Q: You're saying by the end of the year when these IPOs come, so they're all stacked up by the end of the year, right? Anthropic and OpenAI?
A: Yes, I mean, Anthropic, it seems like they'll come faster than OpenAI, and I think they're all stacked by the end of this year.
Q: So, it'll depend on how well they do, is what you're saying, and that'll determine what happens to...?
A: It will depend on what they guide to, right? I mean, for now, what we see is the annual recurring revenue (ARR) numbers from Anthropic that have actually, I mean, most expectations have been on the lower end, they have exceeded expectations. But the question really is what they guide to when they go public.
And the Chinese competition is still there. You know, people are still talking about US AI being too expensive and using open-source models, so that risk stays with a lot of these names.
So, we will see. I think the market will kind of adjust to what the expectations are, and then these companies will have to beat expectations on a quarter on quarter (QoQ) basis as well.
So, I think, going through the second half of the year, if you're positioning, you might look for other plays outside of AI as these companies IPO.
Q: Earnings season is done out here in India. What's the strongest-looking sector to your mind, and any new portfolio bets?
A: Ithink the two-wheelers have done really well, and positively surprised, a lot of the names in the auto sector. So, we're looking at that and kind of looking at our positioning there as well.
The issue with the Indian market right now is the heavyweights, whether it's HDFC Bank, ICICI Bank, or Reliance Industries, they're not really firing this year, which kind of puts a lid on the overall index gains.
But under the hood, you find some companies doing better than expected that are not the heavyweights. So, we think it's a matter of time for HDFC Bank. At least there will be clarity on whether the extension happens sooner or later, and then people will start looking ahead to next year.
So, with the banks at least, we think there'll be clarity towards the end of the year, and with Reliance, there is an IPO that should happen as well. So, some of these company heavyweights might start performing towards the back end of the year as well.
Q: You mentioned Reliance a bunch of times, the news around Reliance and Rolls-Royce announcing sort of a tie-up? Combat jet engines are like the last holy grail, as far as defence manufacturing is concerned, and the tie-up seems to aim to do that. Reliance wants to get into it. Any thoughts?
A: I think the defence vertical is still very early, I mean, so far, the way you play defence is through the listed names, and some of these larger industry heavyweights, whether it's Reliance or Adani, haven't really done much in this space.
But with these tie-ups, I think that will be the next level of growth that people are not really pencilling in today. So, there is, if defence becomes a big opportunity, I expect a lot of these large corporates to participate in that as well.
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Q: Any new additions to the India portfolio?
A: Yes, on the industrials, we've added some of the larger names as well. We think that sector should, going into next year, perform as well.
And we've been selectively looking at some of the small- and mid-cap names as well. Some of them have run, so we've been trimming them, but I think especially on auto ancillaries, we still like them even though some of them have run up.
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