Prashant Paroda, Senior Portfolio Manager at Allspring Global Investments, believes investors should remain patient amid the recent sell-off in Indian equities, as the uncertainty surrounding the Iran-US conflict and rising crude oil prices weighs on markets. He says the current phase could pass once a geopolitical resolution emerges, adding that investors should focus on their time in the markets rather than trying to time them.
Paroda says Allspring is selectively adding to Indian positions and evaluating upcoming IPOs, depending on their pricing. From a 12–18 month perspective, he sees potential in beaten-down large private sector banks, particularly those where management changes have taken place. He believes earnings growth, improving valuations and the easing of merger-related headwinds could support a recovery in the sector.
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Question
How are foreign investors sitting far away from India viewing this vicious sell-off? Markets are at a near three-year low, a 32-month low for the Sensex. How are they thinking about the money already invested in India? Do they see this as a buying opportunity, or do they think things are going from bad to worse and it’s time to pull money out?
Answer:
The stalemate between Iran and the US is concerning for a lot of economies, especially India, as oil prices continue to climb and there doesn’t seem to be any resolution nearby. I know President Trump tweeted that he would hold off on new attacks until the midterms, but from an investor’s perspective, this stalemate is concerning. On the other hand, artificial intelligence (AI) seems to be sucking the oxygen out of all capital markets. It’s not only affecting India, but also, for example, US banks, which have been down quite a bit as interest rates continue to climb. So, it’s definitely a time to pause and see what the next steps will be. People are waiting to see how the new geopolitical landscape pans out by the end of the year.
Question
Of course, the stalemate hurts. High crude prices hurt, and bond yields are also a concern. But the question is, what does one do with the money that’s already here in India? What is your advice incrementally?
Answer:
I think people have to be patient. Typically, it’s your time in the markets that counts, not timing the markets. So, this is just a gestational phase. Maybe it lasts another two or three months, until a resolution is found on the geopolitical front. If you look back to before this whole Iran-US episode started in February, crude wasn’t that high. Inflation was benign, and people weren’t talking about interest rate hikes. These things can reverse pretty quickly as soon as a resolution is found. So, people have to be patient and wait for these clouds to clear.
Question
What are you doing at Allspring here in India? Give us a sense.
Answer:
India has definitely borne the brunt of the sell-off over the last month or so. We are selectively adding to some positions. We’ve seen one of the large funds repositioning and perhaps selling a lot of holdings in India. We think this phase will pass, and there is definitely new primary market activity happening as well. We’ll have a few IPOs further down the line, and we are closely evaluating them. If the pricing is right, we’ll look to add to those.
Question
In terms of ideas, what are you most interested in buying at these levels?
Answer:
From a long-term perspective, I know banks have been beaten up a lot. We think they are reaching some fair valuation. If they continue to compound earnings, and the Indian economy is not doing as badly as people think when looking at the stock market, there could be an opportunity. As these companies continue to compound earnings, we think that, from a 12–18-month perspective, large private sector banks that have been beaten up a lot might see some sort of turnaround, especially those where management changes have happened.
Question
One is doing better; the other, perhaps, not so much. Are you surprised by the one that isn’t doing better?
Answer:
I think it’s been a long phase of not doing as well. But a lot of the work done on branch networks over the last two to three years will benefit them going forward. We’ll see how deposit growth pans out over the next 18 months, but we think it’s pretty positive from that perspective. The merger-related headwinds will probably start abating over the next 12 months as well. We feel very positive. They have a seasoned manager joining who has worked across different businesses and understands large banking in India.
Question
My specific question was about the price action since the announcement. On day one, you could explain it as too much positioning being unwound. But look at it now: the flows are still all on the sell side.
Answer:
My sense is that people were looking for some sort of a bigger bounce, were disappointed in the short term and then decided to throw in the towel. But as earnings come out, there may be some repositioning here as well.
Question
You own both names, right?
Answer:
Yes, we own both names.
Question
I know funds that were absolutely underweight, cut their underweight positions ahead of the announcement, built up their positions and are now aghast at what the price has done since the announcement came through.
Answer:
Definitely. But it’s interesting. We’ve been tracking a lot of managers, and some of them had always viewed it as a growth bank. Now, it’s appearing on a lot of value screens, and value fund managers are coming in as well. So, I think it’s just repositioning, and we’ll see how this behaves over the next 12–18 months.
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Prashant Paroda sees opportunity in beaten-down private banks, advises patience amid sell-off
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