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The Indian market has not priced in a further rate hikes and they will have a sharp impact on everything from foreign investment to earnings in the country, according to Credit Suisse’s Robert Prior-Wandesforde (via The Economic Times).Prior-Wandesforde, who is head of India and South East Asia economics research for the firm, said he expects another 0.75% rate hike for the year. He also expects growth to slow to 7.5% for the current fiscal year and the next year as well.
Prior-Wandesforde told The Economic Times:
Certainly equity related flows are vulnerable in this case. Clearly in India, a lot of the flows that we see are from FIIs, are equity related and to the extent that these increases in interest rates will damage growth and I certainly think they will, and, therefore, they will damage earnings growth as well. Then the attraction for the Indian equity markets and to a certain extent, the Chinese equity market is being gradually on the mind and to my mind, the Indian equity market faces a very unpleasant combination of circumstances right now on probably for a few months yet.
While India may be yet to price in the impact of its rate hikes to fight inflation, Prior-Wandesforde says that China already has.
For China, more of the bad news probably is priced in. So I do not think valuations are particularly stretched there. So our equity stance is more bullish on China than they are about India. India is certainly a key underweight for us.