He said, “If we do have the constrictions in the Strait of Hormuz and in the Red Sea also, it would impact fertiliser prices, which can also lead to a spike in food prices at some point of time. This expectation that inflation can remain higher for longer is bound to ignite expectations of rate hikes by the central bank.”
Despite these headwinds, Raychaudhuri said the firm has maintained its India allocation. “We have been neutral on India for a while… I am not looking at cutting down that weight much at the present point in time,” he said, noting that India remains a marginal overweight position in the firm’s Asia ex-Japan portfolio.Rather than reducing exposure, he believes investors should focus on sectors witnessing earnings upgrades.
According to him, oil exploration companies, basic materials such as steel and aluminium, select industrials, utilities and some consumer services businesses, including e-commerce companies, are better placed to weather the current uncertainty.He said, “We are in a situation where the AI story is being questioned, and at the same time, this Middle Eastern crisis is also hanging like a sword over many other markets. So for investors who have to remain invested in Asian equities, there’s not much of a choice.”
On the banking sector, Raychaudhuri reiterated his positive view on private lenders despite the recent weakness in HDFC Bank’s share price following its earnings. He said improving credit growth and the ability of large private banks to gain market share support the long-term investment case.
“If you have a three to five-year time frame, private banks are likely to do well in India,” he said.
He also pointed to strong bank credit growth over recent months and said investors should remain selective within the sector. Banks that have managed to keep credit costs under control while protecting margins are likely to outperform, with ICICI Bank cited as one such example.
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