Despite recent sell-offs, he sees India as a strong long-term investment destination, with opportunities in midcap stocks, internet platforms, and IT outsourcing sectors.
FIIs have intensified their selling in the past three to four months, with outflows reaching $28-29 billion during this period. However, it must be noted that this trend is not new. Net FII outflows since the beginning of calendar year 2022 stand at $10 billion.
Dutton dismissed concerns that FIIs were shifting capital from India to China, explaining that the recent inflows into China were primarily domestic-driven. He attributed the selling pressure in India to the country’s three-year bull run which stretched valuations.. A slowdown in credit markets and earnings expectations also contributed to capital outflows, but he remains confident in India’s long-term investment prospects.
Dutton highlighted internet platforms and IT outsourcing as the two key investment themes to watch in India.
The long-term growth potential of Indian internet companies, including food delivery, online travel, and fintech, presents compelling investment opportunities, while IT firms, he believes, are well-positioned to benefit from the AI revolution.
With companies in the US and Europe seeking AI integration but lacking in-house resources, Indian outsourcing firms stand to gain from this growing demand.
Emerging market investing is no longer about choosing between India and China, he said. While China previously dominated, its weight in the index has declined, allowing for more balanced allocations.
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Dutton pointed to three factors that could drive a bull market in China: cheap valuations, under-ownership, and earnings recovery.
However, he stressed that sustained growth would depend on restoring consumer confidence, which has been weakened by high savings rates and a struggling property market.
Unlike past bull markets driven by aggressive fiscal and monetary stimulus, China’s current focus on renminbi stability limits large-scale interventions. This suggests that growth will be led by select stocks and sectors rather than broad economic expansion. He highlighted AI and cloud computing as key areas for China’s tech rebound but cautioned that long-term consumption trends still need to improve.
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Dutton observed that the valuation gap between emerging markets (EM) and developed markets (DM) is at its widest in years. As global asset allocators reconsider their positions, a natural drift of capital from the US to emerging markets is likely. Given the recent corrections in India and China, asset managers are increasingly exploring opportunities in these markets.
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