‘UBS underweight on Indian equities vs other EMs’

The recent stimulus from China has made global investors sit up and take notice of the developments. SUNIL TIRUMALAI, head of emerging market (EM) and Asia equity strategy at UBS Securities, tells Puneet Wadhwa in an email interview that despite the recent rally, China is trading at a 40 per cent discount to EMs, compared to a 10-year average of a 20 per cent premium. Within EMs, UBS prefers markets that have attractive fundamentals and valuations. Edited excerpts:

- SUNIL TIRUMALAI

What is UBS' stance on Indian equities for Samvat 2081?

UBS is underweight on Indian equities relative to other EMs. MSCI India's earnings growth outlook for the next two years is at its lowest compared to EMs. However, India is trading at an 80 per cent premium to EMs, compared to a 10-year average of 42 per cent. This divergence between the fundamental growth outlook and valuations drives our underweight stance on India.

Is there a disconnect between the state of India's economy and its stock market?

We acknowledge that India is going through one of its slowest nominal gross domestic product growth periods in history. Somewhat related (but not exactly the same), the stocks in the larger indices are also seeing very slow earnings growth expectations. So, the optimism in the markets is primarily based on valuations and real rates rather than fundamentals.