Goldman Sach strategist says India valuations expensive; China preferred as tactical trade

Hefty valuations a cause for concern.

Valuations have emerged as the primary concern of foreign clients when it comes to India, said Sunil Koul, executive director of Asia Pacific portfolio strategy and global macro research at Goldman Sachs. However, he emphasised that despite these concerns, the strong fundamentals and positive earnings outlook should help alleviate investor worries.

Speaking to CNBC-TV18, Koul expressed optimism that allocations to India would likely improve over the next 12 months due to its robust fundamentals.

In terms of the market rally in China, Koul noted that hedge funds and quants are predominantly investing in China as a tactical trade.

Here are three key takeaways from Sunil Koul's interaction with CNBC-TV18.

IT sector set to rebound

In terms of IT companies, earnings reached their lowest point in the December quarter. According to Koul, the upcoming March quarter earnings, expected to commence in the coming weeks, may also show a slight softening based on the guidance provided by Accenture.

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However, Koul anticipates a significant improvement in numbers as we move into the second half of FY25. He notes that the IT sector has underperformed over the past two years, and believes that it suggests the potential for a better performance as it catches up.

Three rate cuts in 2024 by US Fed

Koul anticipates that the US Federal Reserve will implement three rate cuts this year and another three in the next. Initially, they had expected a total of 6-7 rate cuts by the Fed this year.

In most parts of Asia, with the exception of Japan and Malaysia, central banks are likely to resort to interest rate cuts, according to Koul.

RBI to maintain rates

Regarding the RBI's MPC meeting scheduled from April 3-5, Koul expects the central bank to maintain interest rates at 6.5 percent. However, he anticipates the RBI to commence a rate cut cycle in the third quarter of 2023, possibly with a 50 basis point reduction. Additionally, he suggests that the markets will be eager to see more liquidity-easing measures.

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