Current calm in markets may reverse if geopolitical developments worsen: Rajeev Agrawal

Synopsis

Rajeev Agrawal of DoorDarshi India Fund suggests Indian markets remained resilient due to India's calibrated response to a terrorist attack and a healthy economy. Strong PMI numbers and reasonable valuations contribute to a positive outlook. A strong rupee and anticipated government infrastructure spending are attracting foreign investors back to Indian equities, shifting the narrative from China.

"As we start looking at some of the PMI numbers which are forward-looking numbers, they are looking quite strong. So, economy is good, valuation is reasonable, and India's response has been very calibrated in terms of the terrorist attack," says Rajeev Agrawal, DoorDarshi India Fund.

Indian markets were resilient yesterday, touch wood, no one is complaining. But despite geopolitical tensions which historically have impacted financial markets and the first one to react Indian markets were quite resilient yesterday, what explains that?
Rajeev Agrawal: In terms of why the markets were resilient, my assessment is that India did a very calibrated strike. Even India's press statement was very clear that we only attacked the terrorist camps and so because of the calibrated strike that India did, the expectation is it should not get out of hand which was one of the concerns that the market had previously, so that is one reason. The second thing is the economy is doing reasonably well.

As we start looking at some of the PMI numbers which are forward-looking numbers, they are looking quite strong. So, economy is good, valuation is reasonable, and India's response has been very calibrated in terms of the terrorist attack.

With the India-Pakistan situation as well, one is wondering whether global investors are watching this or not. Yesterday, of course, you had a very resilient reaction by the markets. In the previous incidences as well, we have seen that the markets have been resilient. We have not seen much of a meaningful move. But if escalated at all, do you think this could have any bearing on equities?
Rajeev Agrawal: No, absolutely. If it were to escalate, that will change the market movement and the expectations people have. Right now, the expectation is that this is a standalone event. There might be a little bit more tit for tat, but there is nothing serious here given how India has reacted to the terrorist attack, so that is the expectation. But if it were where Pakistan were to come back with a stronger response, the equation will change quite dramatically if that were to happen.

What has been keeping you busy? I mean, in Indian market, where have you shopped and where are you looking at locking some gains?
Rajeev Agrawal: So, the markets have actually corrected meaningfully in between and then, they have gone back up. But we have found the capital market space has been pretty good in terms of shopping there.

Real estate also came down because there was a concern that in the real estate space things have started slowing down. Yet, if we look at in the premium category, the selling or the sales continue to be quite good and, of course, financials that we have talked about, so those are the three areas I would say.

But given the positioning of India where it is, I mean, three months ago it was go to China, it was cheap; do not buy India because it was expensive; has that narrative changed at a global level because FIIs are back, so can we say that India is back on the radar so to speak?
Rajeev Agrawal: One of the very interesting things that has happened in the last few months is how strong rupee has been. So, when the rupee weakens, we have noticed that the foreign money starts getting pulled out because they do not want to have the depreciation lower the returns, but in the last few months the rupee has been strong and that has given the confidence to the foreign investors to come back into the Indian market, coupled that with the valuations which have become little bit more better and the fact that we go into a financial year 26 where the Indian government infrastructure spend will again pick up, I think all those has enabled the foreign investors to once again start shopping in Indian equities.

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