UBS Wealth, State Street Pick Indian Stocks as Election Hedge

(Bloomberg) -- Indian stocks provide a good hedge in portfolios ahead of the U.S. presidential election, thanks to a domestically-oriented economy.

That’s according to UBS Group AG’s wealth-management arm and State Street Global Markets, which are among firms recommending Indian shares even beyond the Nov. 3 vote, as they expect the $2.1 trillion stock market to be relatively insulated from the election outcome and Sino-U.S. trade tensions.

Easing coronavirus infection rates and economic reopening are further strengthening the case for a market that’s trading near record valuations. Foreign investors have pumped $2.3 billion into Indian stocks in October, trouncing flows to other emerging Asian markets excluding China. That’s helped the benchmark S&P BSE Sensex Index rank among the top performers in the world this month, even India’s domestic consumption-driven economy faces the biggest contraction among major emerging nations.

“Being overweight Indian equities may look like an unconventional choice given the extremely challenging spot India is in,” said Daniel Gerard, State Street’s senior multi-asset strategist. Yet, “there are a number of factors that differentiate it from the story driving China, Korea, and Taiwan -- our favorite markets -- including relative insulation from exports and trade impairment.”

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High frequency economic indicators in India are showing signs of demand-side recovery at a time when daily new virus cases have been steadily declining, although the country remains the world’s second-largest virus hotspot. More loan demand from micro, small and medium enterprises and a pause in interest-rate cuts because of “sticky” inflation bode well for financial shares, Gerard said.

For Adrian Zuercher, head of global asset allocation at UBS’ wealth-management arm, India is “mainly an earnings story” as a fall in input prices has aided corporate profits and margins are more resilient than expected. Earnings estimates for the Sensex index in the next 12 months have risen about 10% since a trough in July, beating the upward revisions in those for the regional benchmark MSCI Asia Pacific Index.

India is one of the Swiss bank’s most preferred markets in Asia despite the Sensex trading at 20.7 times forecast earnings, near a record high.

“In recent months, attention on India as an alternate global manufacturing destination has increased,” Zuercher said. “India has an immediate potential to benefit from its e-commerce industry growth.”

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