BlackRock joins funds betting on rebound of Indian assets amid pandemic

Portfolio managers attempt to navigate India's pandemic by focusing on the nation's long-term growth prospects.

Even as India is attracting all the global attention for the worst virus outbreak, the pandemic has done little to dent the confidence of overseas investors who are betting on a strong rebound.

BlackRock Inc. plans to use any weakness in the rupee to add to a modest long position while GW&K Investment Management LLC is boosting its stock holdings following a recent selloff. Invesco Hong Kong Ltd. and Lombard Odier favor debt linked to India’s sustainable investing and renewable energy sectors.

Portfolio managers are attempting to navigate India’s pandemic by focusing on the nation’s long-term growth prospects, with consumption expected to drive a recovery once the virus crisis passes. While the outbreak has fueled the world’s worst health crisis, limited stock outflows and a rebound in the currency attest to investors’ confidence in the South Asian economy.

“Economic growth will be tempered by the second wave in 2021, but growth will be strong this year and the long-term outlook is quite positive,” said Tom Masi and Nuno Fernandes, co-portfolio managers at GW&K Investment Management. “Short-term investors will be compelled to step aside, but long-term oriented investors understand the opportunity.”

India’s benchmark S&P BSE Sensex stock index has declined about 4% from a mid-February peak, outperforming an MSCI Asia Pacific gauge which is down more than 7%. Global funds pulled $1.5 billion from the nation’s equities in April, versus $8.4 billion when the pandemic raged in March 2020.

Amundi SA and Principal Global Investors LLC are both overweight on Indian equities.

India’s stock market “possesses several structural growth opportunities that we do not expect to be dramatically altered by the current virus surge,” said Jeff Kilkenny, portfolio manager at Principal Global Equities. Infrastructure, personal mobility and insurance are among the attractive sectors, he added.

Investors also like the rupee. The currency has rebounded to become Asia’s best performer in May from its worst in April, and BlackRock Inc. expects it to remain supported as slowing growth shrinks India’s imports and helps shore up the current-account balance.

To be sure, a worsening in the outbreak could alter the picture. M&G Investments is adopting a cautious stance and has a short position on India’s currency.

“A lot of the dollar-rupee correction from the April virus spike may be behind us and maybe the negative news has been priced in,” said Eva Sun-Wai, a fund manager at M&G. “Having said that, I’m not keen on adding exposure back to India yet. The odds of a Covid mutation are high and equity outflows may continue.”

ESG

Sustainable investing is one area that’s expected to remain resilient and investors including Invesco and Lombard Odier like bonds in this segment.

Sectors linked to ESG or renewable “will continue to be very supportive by global investors,” said Freddy Wong, head of Asia fixed income at Invesco. “They will always get access to funding and the revenue streams tend to be very stable, and that’s where a lot believe the pandemic impact on those renewable or utility-related companies will be limited.”

One area of the market that’s booming is green debt. Indian firms have sold a record $4.1 billion of such notes so far in 2021 with JSW Hydro Energy, ReNew Power and Continuum Energy among the issuers.

Dollar-denominated credit is another area of interest. BlackRock is of the view that investment-grade issuers including quasi-sovereigns and conglomerates will be less impacted by the drop in consumer confidence and spending, according to Neeraj Seth, head of Asia credit.