He believes investors can continue to find growth by focusing on sectors and stocks that are showing resilience and are less exposed to some of the broader market pressures.
Within India, Orton is positive on consumer-linked growth names and has his eyes on Bharti Airtel and Bharat Electronics. He sees Bharti Airtel as a quality compounding asset with continued growth and limited near-term capital expenditure pressure, while Bharat Electronics could benefit from resilient defence spending in an increasingly multipolar world.
This is an edited transcript of the interview.
Q: The big story is a surge in global bond yields, with the US 10-year at 4.7% and the 30-year above 5%. US debt has been a concern for some time, but it hasn’t broken equity markets. Should equity investors be worried about rising bond yields?
A: I don’t think equity investors need to be worrying too much, at least not yet. Today’s session was more about positioning, more about geopolitical worries. Perhaps, investors were looking for a little bit more coming out of Anthropic, but most of the pain in today’s session in the US was concentrated in semiconductors. The broad market itself was actually in pretty decent shape.
And when you look around the rest of the world, the story with respect to global bond yields, like you said, is nothing new. We’ve been seeing elevated bond yields, particularly in the US and Japan, has been a story all year. It was particularly challenging for Europe earlier this year.
So, I don’t think this changes the narrative with respect to earnings growth mattering the most for equity markets. And as long as earnings continue to deliver, which they have been so far in really, really good numbers, I think that allows investors to feel comfortable buying the dip, which is exactly what we try and do and encourage our investors to do the same thing.
Q: But you said equity investors should not be worried just yet. At what point is there a line in the sand in terms of bond yields which would worry you, and we need to sit up and take notice?
A: I think it’s the duration of how long you stay at these very, very elevated levels. Because in the past, we’ve had these really sharp moves upward. They’ve tended to relax. Things have tended to come back down a little bit, and then you’ve stabilised. Maybe at higher levels, but not—it’s the speed at which we are increasing and not knowing how long we’re going to stay at these levels.
If we have global bond yields, especially in the US, remaining at the 30-year, 5.3% and above for an extended period of time, I think that perhaps starts to challenge valuations and really puts the onus on earnings growth to have to deliver. But you take out the ability to really see good multiple expansion for the market.
So, again, not a challenge in this elevated growth environment, but when you inevitably start to see the rate of earnings growth start to slow, that becomes more of the issue. But we’re not there right now.
Q: What are you making of this global setup? With yields and crude rising, do you think we’re bracing for another Trump Always Chickens Out (TACO) moment? Global equities have turned jittery in the past, as higher yields and crude pose risks to the US economy. Are we nearing a point where President Trump could step in and kick the can down the road by saying a deal is being worked out?
A: It’s going to be interesting to see when and if that happens. It’s never an investment strategy to depend on TACO or depend on investors to buy the dip because that can go on for longer than you might expect.
But we just had primary elections here today across most states in the US, so perhaps we’re clearing a little bit of a political hurdle, where maybe standing up or sabre-rattling gets a message across and then you have a little bit more time before the election season really sets in in October, so perhaps we’ll start to see that going forward.
But I think the main message that we should be paying attention to right now isn’t what the White House administration might do. It’s really thinking about what are the highest quality investments across the AI capex complex that have sold off, that continue to show accelerating earnings growth.
Those are the types of names I would want to buy in a dip to continue to be a little bit overweight growth in portfolios, but then looking across the rest of the world and across different sectors and industries, how else can I balance my portfolio to weather some of the challenges that we have?
Because going back to what I mentioned at the start, the entire market is not going down. There’s a lot of dispersion. Correlation is very, very low across the markets, so if you are selective and lean into the right places, there’s a lot of things you can do to insulate yourself from perhaps some of this volatility in the market.
So, looking to areas in the US and Europe like financials, looking to industrials in Japan, and industrials across most of the emerging market complex, looking to sectors in India that are a little bit more levered to the consumer that are sort of rallying, like Eternal (Zomato) or One 97 Communications (Paytm), there’s definitely things investors can do to continue to have growth, but also not lose big on days like today.
Q: If you could get some weakness, it’ll be a good opportunity to get stocks that you want at your price. So, what’s on your radar?
A: I think right now a lot of the names that we’ve discussed in the past, I mentioned Paytm, Eternal, those have both done very well.
I have my eyes on Bharti Airtel. This has been an underperformer so far this year, but it is a quality compounding asset. They’ve continued to post good growth. They’re not in a CapEx expenditure cycle, so I think that’s the name to watch on weakness.
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And then also keep an eye on Bharat Electronics (BEL) because the defense complex across the world has really sold off, and it’s interesting because we’re continuing to invest more and more in defense, and we’re in a multipolar world.
So, this is an area where I would expect to see earnings resilience, and valuations look pretty fair. So that’s another name I have on my radar.
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