India Remains A Neutral Bet: JPMorgan's Rajiv Batra Explains Why | CNBC TV18

[00:00:00]Well, Rajiv Bhatia is with us from JP Morgan with what you know he thinks is happening right now as far as markets go. Rajiv, it's always interesting to catch up. Thank you very much for joining us here.

[00:00:11]>> Good morning, Prashant. Thanks for having back.

[00:00:13]>> Uh Rajiv, so you know, we we are Is this Is this deep seek 2.0? I know you invest in You You look at markets around the region pretty closely. You look at US tech as a theme and you know, you advise on all of this.

[00:00:28]Uh we got we got pretty last 6-7 days we got between 15 and 20% corrections in Korea and Taiwan. They're up still They're still up a lot on a year-to-date basis, but what do you make of it and are you seeing any inclination for large foreign funds to allocate to markets like India?

[00:00:47]>> Uh so, Prashant, I will say that's a buzzword which has now started floating around since middle of last month that whether it's a deep seek 2.0.

[00:00:56]But, when you look into the market and it told me there are lots of other reason why this correction happened. The one broad-based reason have been the risk of mode that came in picture post you can say the US-Iran kind of a friction that has started. So, that led investors to start trimming some of the risk from their book. And people will sell what they own. Sadly, the most part of the ownership was in a crowded space like tech and AI hardware. So, that became the ultimate reason. Beyond that, we saw some concern started coming on whether there's an excess compute in the markets and some of the CSP hyperscaler guy want to sell and that puts a question mark on whether there will be more demand for compute in future and that means whether there will be more demand for the hardware stake or not. Finally, last but not the least, the concern started arriving that markets want to move from the frontier model to more like an open source model and hence this is the reason why adoptions of you can say inexpensive China AI models start becoming more like a rage. Couple of the names are already listed on Hong Kong Stock Exchange. You can look at the performances of the stock.

[00:02:10]But I will say it is a too early to say whether it is going to be a deep seek 2.0 moment. We can already see one of the newer model launch.

[00:02:23]The company itself is coming out and saying that we have reached a limit and we don't have enough GPU or a compute capacity to accept more kind of a subscription overall. So it is easier said and done whether we are in going in that space, but answer will come pretty soon when from tomorrow onwards some of your top five and seven CSP or hyperscaler companies start reporting. If the capex forecast in in line with my analyst estimate for 2026 870 billion, more than a trillion in 2027, then I don't think so there's an end to this trade. There's a just a you can see a pause in this semiconductor or tech hardware weighted, which means this is a brilliant opportunity for my investor to go and buy the dip because the correction has been fully led by de-rating. It has not came on the back of downward earnings revision or any disappointment in terms of an earnings. And if market goes back to earnings growth earnings revision card, then I believe North Asia is still leading the whole emerging market space in terms of earning growth.

[00:03:28]>> Spoke about buy the dip. This morning the Korean index is up around 4 and 1/2%. Obviously this after you know comments came in from regulators and leaders out there as well and some of the you know steps that they're taking to curb the sort of volatility that we've seen in the market as well. 4 and 1/2% higher. It opened about 2% lower.

[00:03:44]So from there it's a serious up move that we're seeing out there. But Rajiv, if your belief is that this dip should be bought, Does that mean that India will continue to underperform? What's your call on India from here on?

[00:03:59]>> So, right now in case of an India, we do believe that absolute return are going to be positive.

[00:04:05]But it will be a stretch to expect that outperformance what India has been given during the month of June and what India have delivered month-to-date overall can be sustainable throughout the end of this year. Because as I've said earlier, if the story is earning growth, then if I just look at a second quarter for this calendar year where India earnings are also going on, expectation ex-energy from India cohort is 11%, but in case of an emerging market, that kind of a number is 91% and 91% earning growth is coming from the cohort of Korean memory space, Taiwan tech space overall, which is quite a stretch for any other emerging market, not really just India, even other non-Asian market, too, to beat that kind of a mark. And hence, this is the reason why outperformance will be a question mark, but absolute return can make a comeback in India and also looking at the very high volatile episode of sell-down over the last few weeks, India has now started appearing as also a AI hedge trade, especially in a scenario where India has started delivering on earning growth, not just on the large-cap, but on the broader market basis.

[00:05:18]>> Got it. Hi, Rajiv. Always good to see you.

[00:05:20]You know, what about the earnings estimates? I recall you all were at around I think 14 13-14%. You had to trim down expectations to around 11%.

[00:05:28]Going by what you have seen in the past quarter, do you think there is a downside risk or do you think we'll get that double-digit that we were hoping for?

[00:05:36]>> So, nice question, Nigel. I will say that the good part of the earning growth is when I look at a consensus number, it is not as scary as it was when I appeared on your show last time. Last time the consensus earning growth number for uh you can say calendar year 2026 or FY27 was in the range of 15 to 16% cohort. Right now that number has declined to 10 to 11%, which is in line with my estimate. No doubt there's a pressure building because analysts have still not revisited their calendar year 2027 or FY28 number due to which that number have now increased on consensus side to 18, but in case if you can say factors of production like oil remain well-behaved, commodity price remain well-behaved, we don't see any kind of a monetary policy tightening, then even for FY28 or calendar year 27, 15 to 16% will be on the card and that set the stage for India from the next 12-month perspective where we can get a return in a high teens kind of an handle.

[00:06:38]>> Oh, that'll be beautiful, you know, been a bit of a painful ride for the last 18 to 24 months. So we get those mid-teens earnings growth well, the street will be very very happy. What about preference in terms of the Asian markets? I think you were positive on China as well as Malaysia, and then India came lower down lower down in the pecking order. What's the view right now among Asian markets?

[00:06:57]And what about the FIs? A couple of those problems are getting fixed, right?

[00:07:00]The RBI's taken measures to stabilize the rupee. Hopefully earnings growth comes back. Your view, are the FI flows set to turn for India? So give us your answers on both these two, Asian markets and FI flows.

[00:07:13]>> So in terms of our recommendation, we still continue to prefer North Asia over South Asia.

[00:07:19]In South Asia, it includes both India and ASEAN.

[00:07:22]The reason behind like keeping South Asia as a number two over here because our only problem is not just the earning growth, our problem is also the upcoming headwind which market is going to face. Remember most part of the South Asia economies are the deficit country, and we are in a scenario where the US rates are higher, dollar is getting stronger. So, even if the market does not have inflation concern and if you need to protect your currency, central bank may need to change their stance if the higher US rate and stronger dollar become a persistent problem overall. So, that becomes my new negative not just on the valuation side or the risk premium side, but even for earning growth if monetary policy need to change their stance. The second one is El Nino. I know it's not an immediate concern. It will develop somewhere by the end of the year like November, December and January.

[00:08:14]But, once it start becoming the mainstream story again, initially it will play from the risk premium perspective and later on when the impacted sectors earning starts getting revived down, that's where the earning growth impact will come. So, hence this is a reason why initially I told I'm circumspect about what consensus is now forecasting 18-19% next year because these are some of the headwinds which will take earning down. In case of a North Asia, you have a clear window of what is happening like both Korea, Taiwan and now even China in terms of a hardware capex base overall where there's an end demand and we are going to see whether the CSPs comes out and give the quantitative guidance is for not just 2026 confirmation, but even for 2027 and some bit of a subjectivity on 2028 which keeps on moving my earning growth number higher. Interestingly, if you will also compare earning growth ex IT and industrials for both the cohort North Asia and South Asia, even in that segment, North Asia still have a positive growth differential to South Asia. So, this is a reason why the pecking order still sit with Korea, Taiwan, China as an overweight, India as a neutral and selective you can say some preference in ASEAN.

[00:09:34]Talking about the last part of the questions which is FI flows. So, no doubt uh we have seen 40% drawdown in the inflows number at an emerging market level back in April.

[00:09:47]YTD inflows in EM was close to around 85 billion dollar. Right now that number is down almost to around 50 51 billion dollar.

[00:09:55]Uh Interestingly, this drawdown has impacted much more the North Asia cohort compared to South Asia or you will say India also.

[00:10:05]As I've said at the start, investors sell what they own. When you look at foreign ownership of India, it has almost declined from peak level of around 18 19 now to around 14.7 14.4.

[00:10:18]Uh so, the propensity to sell enough from here is reducing and that is also good news because if the foreign sell down slow down in India also compared to what it was the trend in the past, it means there's a lesser pressure on my domestic investors both institutional and long only and retail to absorb the FI's sell down also at same point of time when they are bailing out the primary or the IPO market also.

[00:10:45]So, all in all I will say it's not that bad situation when we look at internals of NSE 500 also. Foreign holdings are going up for mid caps and small cap. It's the large cap sell down from the foreign investor what is hurting India.

[00:11:02]>> Okay. All right.

[00:11:03]Rajiv, we'll leave it there. Thank you very much for joining us. A good speaking with you and I think good explanation and good context backdrop towards happening North and South Asia and and of course I mean North done phenomenally where I think those markets Korea Taiwan still up 50 to 80% you know, on a year-to-date basis even after the pullback that we have had. And of course now, you know, this is of course also China and what's happening there.

[00:11:27]China tech seeing renewed interest once again.

[00:11:30]Thank you very much once again here.

[00:11:31]>> Thank you.

[00:11:32]>> Okay, all right. Well, uh you know, HSBC uh is