‘Strong earnings partly justify mid-cap’s rich valuations,’ says Manpreet Singh Gill – Banking & Finance News

Expectations of a rebound in corporate earnings, a soft landing in the US and India’s macro resilience augur well for Indian equities, Manpreet Singh Gill, chief investment officer, Africa, Middle East & Europe, Standard Chartered, tells Mahesh Nayak in an interview. With inflation contained and more rate cuts likely, equities are favoured over bonds, gold and cash, Gill says. Excerpts:

Where are you advising your clients to invest in this market? And why?

We expect economic and earnings growth to revive in H22025, driven by easing financial conditions and fiscal boosts like income tax cuts. We are overweight on Indian equities, preferring a diversified allocation. Bonds and gold are neutral, while cash is underweight. Investors should be selective in risk-taking, as the worst for Indian assets may be behind us. Caution, however, is still warranted.

You are overweight on India. Is this driven by structural conviction or tactical positioning?

We are bullish on Asian equities (ex-Japan), expecting them to outperform globally over the next 12 months. Within Asia, we are overweight on China and Korea due to attractive valuations and positive cyclical drivers. We stay bullish on India’s medium-term prospects. India possesses a strong core holding, driven by large domestic economy, improving macro fundamentals, easing financial conditions and a stable policy environment, despite stretched valuation premiums over north Asian peers.

Which sector are you overweight on and why?

We are adopting a barbell approach, favouring domestic-focused sectors like financials and consumer discretionary, which will benefit from recovering domestic growth, tax cuts and easing financial conditions. We are also overweight on healthcare for its defensive nature and hedge against global uncertainty, balancing our cyclical bets.

Are mid-cap valuations still justifiable despite their premium to large-caps?

Mid-caps trade at a premium, but strong earnings delivery and upgrades to FY26 EPS growth estimates partly justify rich valuations. We see mid-caps as an opportunistic allocation due to robust earnings outlook and potential benefits from improving domestic growth. Meanwhile, we’ve downgraded large-caps to core holding due to balanced risk-reward, favouring broader markets like mid-caps.

Concerns and challenges for the India market.

While our base remains an improving growth cycle in India, there could be potential roadblocks. A major driver of our optimism on Indian assets is expectations of a pick-up in domestic growth and earnings cycle. A persistent slowdown akin to the normalisation we witnessed in FY2025 could weigh on Indian assets. Other potential risk factors are external – from the ensuing US trade negotiation to an escalation in geopolitical tensions, which can feed through higher commodity prices and headline inflation, impacting domestic macro stability.

What are the leading indicators for a potential reversal in RBI’s stance?

We expect surplus banking system liquidity to facilitate faster transmission of lower rates. While the bar for further policy easing has risen after RBI’s recent actions, we anticipate additional easing if growth lags and inflationary pressures ease, providing room for growth-supportive policy interventions.

Where do you see the bond yield in the next 6-12 months?

We expect bond yields to decline modestly over the next 12 months. The 10-year benchmark yield may trade in the 6.00-6.25% range. We see improved risk-reward in high-quality (AAA) corporate bonds, given cycle-high spreads offered over government bonds.

Do you see a shift from dollar, or will the greenback maintain its supremacy despite weakening?

While the argument on de-dollarisation has merit, we see this as a multi-decade phenomenon, rather than an immediate outcome. The dollar stills enjoys a strong demand for global trade settlement, capital flows and its appeal as a reserve currency. Shorter-term cyclical factors should result in a weaker dollar over the next 6-12 months.

Where do you see the rupee in the next 6-12 months?

Gains in the rupee are likely capped due to narrowing bond yield, policy rate differentials with the US and an uncertain global trade environment. We expect USD/INR to trend towards 88 over the next 12 months, with the domestic currency trading bearishly against the euro, yen and pound despite potential benefits from dollar weakness.

Can India maintain macro resilience if US trade negotiations stall?

While India remains a key trading partner to the US, Indian good exports form a relatively low portion of US overall imports at ~3%. These factors make India relatively less vulnerable to tariff shocks compared to export-heavy EM peers, adding to its structural appeal.

What has been your experience on the approach of Indian and other global investors in terms of products and advice and returns?

In my experience, home bias is quite common among Indian investors, while global investors tend to be more comfortable with diversified allocations. Also, absolute return objectives are quite common in Indian investors which can influence investment choices. Global investors tend to seek better risk-adjusted returns.

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}