1 week ago
Herald Van Der Linde, Head of Asia Equity Strategy at HSBC, maintains a long-term positive outlook on Indian equities but believes a valuation reset is needed as earnings have fallen short of expectations.
"India has been growing very fast over the last 3-4 years with earnings growing over 20%. Now, earnings are coming well below that. About 60% of companies that reported earnings have not met the analyst earnings estimates. So there's a bit of a reset in Indian earnings for variety of reasons. There's a bit of margin squeeze in the banking systems or consumer names etc. So that lowers the expectation," he said.
Yet, he sees India as a steady, long-term growth story while considering China a more volatile, short-term trading opportunity.
According to Van Der Linde, the primary distinction lies in each country's investment horizon.
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India offers a promising structural growth story over the next two to four years. Although China might perform well in the coming years, Van Der Linde suggests it is unsafe to assume long-term certainty for this market.
In China, the worst-case economic scenario, which appeared to be developing a few months ago, has been averted. He attributed this improvement to measures that ensure essential payment systems in China's economy continue to function smoothly.
With these financial adjustments, he believes the worst has passed for China, as certain economic indicators, like property transactions, are beginning to recover.
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The World Bank predicts that even with recent stimulus efforts, China’s gross domestic product (GDP) growth will slow down to 4.3% in 2025. The Organisation for Economic Co-operation and Development (OECD) has a slightly more optimistic estimate at 4.5%.
Similarly, Morgan Stanley, Goldman Sachs, and Maybank Investment also expect a 4.5% growth rate. This is a notable drop compared to the previous decade when China’s yearly growth often exceeded 6%.
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