Could India be on the verge of outperforming the rest of Asia? In this exclusive interview with ET Now, Mark Matthews, Head of Investment Research at Julius Baer, shares his outlook on Indian equities, crude oil, AI-driven markets and global capital flows.
Watch as he explains why falling oil prices, a possible rotation away from semiconductor stocks, and attractive valuations could position India as one of Asia’s strongest-performing markets in the coming months.
Matthews also discusses whether the rally in semiconductor stocks is nearing its peak, the outlook for global oil prices, the impact of AI spending on markets and why he believes India’s valuation premium remains justified despite recent market moves.
Matthews identifies lower crude oil prices as a major tailwind for India. He notes that India was disproportionately hurt when oil prices surged, so it stands to gain the most as they decline.
“The second reason is the rotation we are beginning to see away from memory chip stocks, particularly in South Korea, toward lagging markets in other parts of Asia. This does not exclusively mean India; Hong Kong, for example, has also been a laggard and was used as a funding source for investments into North Asian markets during the first half of the year,” Matthews added.
Rotation from Tech/Semiconductors
There are signs of a market rotation away from memory chip stocks in North Asia (like South Korea) toward laggards like India. Matthews cites evidence of declining AI-related expenditure and high chip costs as indicators that semiconductor stocks have reached a peak.
“We are now seeing signs that chip prices have risen too far. The cost of renting computing chips has increased significantly, while their usage appears to be declining based on various industry indicators. Anecdotally, companies are finding it increasingly difficult to justify the high levels of AI-related spending in their budgets. Many have already exhausted the AI allocations they had set aside for the entire year, even though we are only halfway through it,” said Matthews.
“We are targeting an oil price of approximately $60 per barrel a year from now, which is lower than the current level of around $69 per barrel. That said, I would not describe it as a dramatic decline,” said Matthews.
He added, “we have long believed that there is an abundant supply of oil globally, and not just in the Persian Gulf. There are many other regions around the world capable of meeting demand. We have also consistently viewed oil as an increasingly legacy asset as the global economy continues its transition toward renewable energy.”
Rather than calling the current AI surge a bubble, he compares it to the 2000s commodity super-cycle.
Matthews said, “I would not describe it as a bubble because the price-to-earnings ratios of semiconductor stocks are still below 10 times. However, those valuations are based on earnings expectations for this year and next year. The more important question is what earnings will look like in 2028 and 2029.”
“This reminds me of the commodity supercycle in the 2000s. At the time, the prevailing view was that China would continue buying vast quantities of commodities, driving a long-term structural bull market. I would not have called that a bubble either, but it resulted in a very powerful rally in commodity-producing companies. Their profits peaked around 2011, yet analysts continued to forecast earnings growth for 2012, 2013, and beyond. That did not happen. As commodity prices declined, earnings also fell.”
“That is the parallel I would draw, not the dot-com bubble, but the commodity supercycle. The idea that such elevated prices can be sustained indefinitely without triggering some degree of demand destruction is difficult for me to accept. I also believe technology will continue to evolve, enabling more efficient use of semiconductor resources and ultimately reducing demand compared with current expectations,” he added.
While India traditionally trades at a premium compared to other emerging markets, Matthews believes current valuations are at a “decent price” following a period of sideways movement.
“India has traditionally traded at a premium to the broader emerging markets, as you rightly pointed out. Based on our estimates, it is currently trading at only a slight premium, which is well below its long-term average. I would not expect India to trade at parity with, or at a discount to, emerging markets because of several structural factors, including capital controls and the size of its population. In fact, to the best of my recollection, the only time India traded at parity with emerging markets on a price-to-earnings basis was at the bottom of the global financial crisis,” Matthews said.
He added, “at current levels, I believe valuations are attractive. The market has largely moved sideways for more than a year, putting it in a better position from a valuation perspective. Is it an exceptional bargain? No. But is it reasonably priced? Yes.”
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
