Daily Voice: Why an AI pullback could lift Indian stocks more than Iran peace, according to Avendus Wealth

Reports coming in for today mention that Swagatam Biswas, Head of Public Equities at Avendus Wealth Management, believes a resolution to the Iran conflict would trigger a relief surge across markets, but India is increasingly noted as an anti-AI trade by foreign market participants.

As a result, a pullback in the AI euphoria would be a much bigger trigger for markets than an end to the Iran conflict, he stated in an interview with Moneycontrol.

According to him, healthy corporate and bank balance sheets are the single biggest factor providing stability to markets today. Net debt marks stay well under control, and in many cases, corporate balance sheets have significant headroom to leverage for the next leg of expansion, Biswas stated.

Is the market unlikely to gain resilience unless there is a resolution to the Iran conflict?

The resolution of the Iran conflict would lead to a relief surge on all markets. So yes, that is true. That stated, India is more of an anti-AI trade in the mind of foreign market participants. So, a pullback in the AI euphoria would be a much bigger trigger than the end of the Iran conflict.

Could the current external factors force the RBI’s rate stance in the upcoming policy meetings?

All these factors elevated crude prices and inflationary pressures would have some bearing on RBI’s rate stance for sure. That stated, there is no immediate shock factor for the RBI to get overly worried around, unless of course geopolitics drives the Ukraine-Russia conflict or the Middle East disruptions in extreme directions.

Have you observed stronger interest in discretionary stocks compared with staples?

Yes, that has clearly been the trend for some time, as is largely visible from the relative stock price movements. That stated, over the last 2-3 weeks we have noted increased questions around beaten-down staples names. There is no clear change in direction as yet, but it is certainly worth noticing.

Do you think credit expansion will outpace deposit expansion in the near-to-medium term?

Yes, that looks like the case.

Are corporate balance sheets much healthier than in the past, with net debt marks remaining at manageable marks?

Healthy balance sheets of corporates and banks are the single biggest factor of sanity when market participants look at markets today. Over the last 5-7 years, we have noted a disciplined approach by both corporates and banks, which today offers us resilience to shocks and possibly a platform for healthy expansion.

Net debt marks are well under control and in a lot of cases corporate balance sheets have significant scope to lever up for the next leg of expansion.

Do you see significant expansion and earnings momentum in the CDMO space? Are you bullish on the hospital space?

The CDMO (contract development and manufacturing organization) space is a visible area of expansion, although stocks have additionally run up in anticipation. The hospital space is interesting; that stated most specialty stories are priced to perfection, so you are effectively playing for the compounding of earnings in these names.

Single specialty stories can get interesting. There is additionally continuing private equity interest in the hospital space. That stated, one needs to be cognizant of potential government action on the pricing of consumables, which has emerged as an area of concern. Any regulation on that front could impact profitability and trigger a knee-jerk reaction in stock prices.