India one of the most overvalued markets in Asia: UBS

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India one of the most overvalued markets in Asia: UBS

Manishi Raychaudhuri of UBS says that India is one of the most overvalued markets in Asia. However, he says that it is unlikely for a major slowdown to emerge in foreign fund flows. He also believes that domestic fund flows are likely to stay firm.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Manishi Raychaudhuri of UBS says that India is one of the most overvalued markets in Asia. He believes that there will be no major slowdown in foreign fund flows. Domestic fund flows are likely to stay firm says Raychaudhuri.

He expects a 25 basis point Fed rate hike. Consumption and cost arbitrage in IT will be the key drivers for earning upgrade, he says.

He is bullish on HCL Tech , Tata Motors and Hindalco.

Excerpts from CNBC-TV18's exclusive interview with Manishi Raychaudhuri:

Q: It is interesting that you are revising your earnings estimate by 11%. What led to those upgrades?

A: If you notice, majority of our earnings ugrades come in the sectors, which we view favourably. For example in engineering, IT sevices, cement and also in some non-ferrous metals and select autos.

I think the investment theme that is currently running in India, which essentially talks about three things; consumption, cost arbitrage in IT, BPO and in manufacturing and thirdly, accelerating capex and infrastructure development cycle, all the upgrades have got to do with these themes. I am not surprised that our earnings upgrade over the last three-four months add up to almost 10-11% of our previous earnings estimate.

Q: Liquidity, what have you banked on in terms of predicting benign liquidity for this current year?

A: It is a difficult question to answer, but if we go by the fundamentals then we believe that inflows into the emerging market equities as a whole, is likely to remain benign because one, globally we expect the US Fed tightening cycle to end somewhere around January-February with another 25 basis points tightening and traditionally, end of tightening cycle has always led to increased inflows into emerging market equities. And within emerging markets, India remains one of the strongest growth markets and our own global economic forecast suggests it is second, next to China.

If we are having a scenario where emerging market equities are likely to see continued inflows, growth does not falter in India or globally and then possibly on a fundamental basis we are unlikely to see a major slow down in the kind of equity inflows that we saw last year. Even the anecdotal evidence, particularly from Japanese equity investors, points out to another good year for Indian equity inflows.

Finally, even domestic inflows could pick up significantly. Over the last one-one and half years, there has been benign tax environment for equity investment and therefore the domestic investor remains quite strongly under-invested in equities. Also, the last data from RBI indicates that hardly 1.5% of household investments are in equities, so there is certainly a potential for that to rise quite significantly.